...Case 1: Warren Buffet a) Buffett portrays intrinsic value as “The only logical way to evaluate the relative attractiveness of investments and businesses.” (Bruner et al, 2009 p.7) It has accorded such importance because it can be used to estimate the value of the businesses ongoing operations and not the companies stock. Through the calculation of the discounted cash flows, and moreover the net present value of the forecasted performance, we can therefore figure out whether the investment holds the potential to generate value. By comparing these amounts to ones within the market and therefore being able to identify certain businesses that are very undervalued. The alternatives of valuing an investment include calculating the book value or accounting profit. Buffett rejects the alternatives to intrinsic value because he believes that the conventional accounting approach or methods follow certain rules that do not accurately forecast the future of the investments performance. (b) The very essence of Buffett’s investment philosophy is that of his use of intrinsic value to determine the quality and future value of an investment, instead of basing it on accounting reality. However, accounting profit should be used hand in hand with intrinsic value because it helps clarify managements skills and how they put their capital to use. Buffett calculates the discounted cash flows of the particular company, therefore understanding its economic reality. Rather than the financial statements...
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...Berkshire Hathaway AFIN250 Monday 5pm Christopher Lam 43820832 Savneet Kambo 44677987 Jason Weng 43885772 Table of Contents Executive Summary ............................................................................................................................2 Culture, a catalyst for Berkshire’s success ...........................................................................................2 Heir to Berkshire Hathaway ...............................................................................................................3 Graham & Dodd valuation model .......................................................................................................3 Bruner’s Disaster Framework, a risk assessment tool ..........................................................................4 Diversification of Berkshire Hathaway ................................................................................................5 Volatility timing .................................................................................................................................6 Conclusion .........................................................................................................................................7 Appendix ...........................................................................................................................................8 Reference ..........................................................................
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...during the current crisis – Lost $25 billion in 2008-2009 – Called for more income tax for rich Americans (but not necessarily investment tax) Warren Buffett Australian School of Business • Newspaper delivery boy at age of 13 • First investment in pinball machine at age of 15 • Graduated from Columbia and worked as an security analyst for 2 years • Started an investment partnership with $100 at age of 26; 13 years later, he cashed out with $25 million • Controlled Berkshire Hathaway and transformed it into an investment vehicle – Net worth increased from $22 million to $69 billion in 40 years, at an annual growth rate of 22% – Owned a diversified portfolio of businesses, mainly insurance companies – Invested in publicly listed stocks (American Express, BYD, CocaCola, Moody’s, Wells Fargo, etc.) Share Price of Berkshire Hathaway A Australian School of Business Buffet’s Investment Philosophy • Australian...
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...rP os t 9-206-095 REV: OCTOBER 31, 2006 ROBIN GREENWOOD LUCY WHITE Introduction to Valuation Multiples Table 1 op yo A multiple is a market price per unit, which, when multiplied by the number of units, gives the value of those units. We use multiples regularly in our everyday lives without even realizing it. For example, to determine the value of a bag of fish, we multiply the price of fish per pound (the multiple) by the weight of fish in the bag (the number of units). Below are some more examples of multiples you may have used. Everyday Multiples Quantity X Pounds of fish Bushels of apples Gallons of gasoline Number of square feet X X X X Multiple $ per pound $ per bushel $ per gallon $ per square foot = Value = = = = Cost of fish Value of apples Price of tank of gas Value of property No tC In real estate transactions, realtors often make a first estimate of the value of a property based on the number of square feet times the prevailing price per square foot in the locality. For example, if the average price per square foot in your neighborhood is $500, you might think you got a good deal if you acquired a 1000-square-foot apartment for less than $500,000. Although multiples present an efficient way to value an item, they also pose risks. Not all 1000-square-foot apartments in a particular neighborhood sell for the same price. Other factors, such as supply, condition, and location of the...
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...1. Strong From 6 4.2. Semi-strong form 6 4.3. Weak form 7 4.4. Random Walk Hypothesis 8 5. Empirical evidence 9 5.1. Joint Hypothesis Problem 10 5.2. Capital Asset Pricing Model 11 5.3. Empirical evidence on investor overreaction 12 6. Comparisons to international stock markets 13 7. Conclusion 15 9. Bibliography 16 1. Abstract The JSE is a securities exchange based in South Africa and is considered to be the largest on the African continent. More than 400 stocks are traded on the JSE and as a result, it is important that investors are aware of the relevant information regarding stocks, which would enable investors to make sound investments. The Efficient Market Hypothesis is used to ascertain whether certain stocks and their respective prices in a particular market reflect all necessary information, which would illustrate an efficient market (Fama, 1970). Carrado and Jordan (2000) supports the aforementioned statement by affirming that markets are efficient in terms of sources of specific information, on condition that information is not exploited to earn above average returns. Furthermore, Fama (1965) explained the efficiency of markets and their stock prices by analyzing the three forms of market efficiency, namely; the weak, strong and semi-strong forms of efficiency. However, it must be mentioned that ascertaining the form of efficiency used by the JSE is no easy feat due to the fact that different researches produce different results...
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...Chapter 2 Financial Reporting and Analysis REVIEW Financial statements are the most visible products of a company’s financial reporting process. The financial reporting process is governed by accounting rules and standards, managerial incentives, and enforcement and monitoring mechanisms. It is important for a user of financial information to understand the financial reporting environment along with the accounting information presented in financial statements. In this chapter, the concepts underlying financial reporting are discussed with special emphasis on accounting rules. Next the purpose of financial reporting is discussed – its objectives and how these objectives determine both the quality of the accounting information and the principles that underlie the accounting rules. The relevance of accounting information for business analysis and valuation is also discussed and limitations of accounting information are identified. Last, accrual accounting is discussed including the strengths and limitation of accruals, and the implications of accruals for financial statement analysis. OUTLINE | | |Financial Reporting Environment | |Statutory Financial Reports ...
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...Mergers, Acquisitions and Corporate Restructuring II MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING Mergers, Acquisitions and Corporate Restructuring Edited by Chandrashekar Krishnamurti Vishwanath S.R. Copyright © Chandrashekar Krishnamurti and Vishwanath S.R., 2008 All rights reserved. No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without permission in writing from the publisher. First published in 2008 by Response Books Business Books from SAGE B1/I-1 Mohan Cooperative Industrial Area Mathura Road, New Delhi 110 044, India SAGE Publications Inc 2455 Teller Road Thousand Oaks, California 91320, USA SAGE Publications Ltd 1 Oliver’s Yard, 55 City Road London EC1Y 1SP, United Kingdom SAGE Publications Asia-Pacific Pte Ltd 33 Pekin Street #02-01 Far East Square Singapore 048763 Published by Vivek Mehra for Response Books, typeset in 9.5/13 pt Berthold Baskerville by Star Compugraphics Private Limited, Delhi and printed at Chaman Enterprises, New Delhi. Library of Congress Cataloging-in-Publication Data Mergers, acquisitions and corporate restructuring/edited by Chandrashekar Krishnamurti, Vishwanath S.R. p. cm. Includes references and index. 1. Consolidation and merger of corporations. Corporate reorganizations. I. Vishwanath, S.R., 1971– II. Krishnamurti, Chandrashekar, 1956– HG4028.M4 .M44 658.1/6 22 2008...
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... |RESEARCH METHODOLOGY |3 | | | | | | |PART I | | | | | | |I |BASIC |4 - 7 | |II |STOCKS |8 - 11 | |IIII |INVESTORS |12 - 14 | |IV |INVESTING |15 - 21 | | | |...
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...Investing Readers’ Corner Appendix to Web Page: Formal Analysis of Abnormal Returns, No-arbitrage, and Market Efficiency What this Chapter is Doing Chapter 3 does three things: First, it looks at three valuation and investment approaches that use financial statement information, but in limited, suspect or impractical ways, and points out the pitfalls in these methods: o The Method of Comparables o Screening Analysis o Asset-Based Valuation Second, it outlines the architecture of fundamental valuation approaches that employ all available information, and illustrates that architecture with the dividend discount model. In this chapter, as in each chapter in the book, approach the material with the question: how do I get an edge? What are...
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...Andrey Artemenkov, The department of economic measurements, GYY artemenkov@rambler.ru Modern Portfolio theory (MPT) and Financial Economics: a theory of lesser turf?♣ “In this age, which believes that there is a short cut to everything, the greatest lesson to be learned is that the most difficult way is, in the long run the easiest.” Henry Miller “[These are colossal] disproportions that have accumulated over the last few years. This primarily concerns disproportions between the scale of financial operations and the fundamental value of assets, as well as those between the increased burden on international loans and the sources of their collateral. … In effect, our proposal implies that the audit, accounting and ratings system reform must be based on a reversion to the fundamental asset value concept. In other words, assessments of each individual business must be based on its ability to generate added value, rather than on subjective concepts. In our opinion, the economy of the future must become an economy of real values. How to achieve this is not so clear-cut. Let us think about it together.” From the Address of Vladimir Putin, Prime Minister of Russia, at the Davos Economic Forum (February, 2009) This Part analyzes the pre-analytical foundations and macro-economic impact of the Modern Portfolio Theory1 (MPT) tenets, on which much of the present Western investment theory and financial economics is erected. Our general inference is that while the former are tautological...
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...The Mammoth Has Arrived: Pension Plans and the darkness that lies within The mammoth has arrived. In the last decade pension obligations have become a serious problem that many organizations are struggling with. The mammoth I speak of is the gigantic pension obligations that are billions of dollars underfunded. The wake of a new era has arisen and organizations are faced with the after effects of years of erroneous expectations on returns on plan assets. The problem has become so explicit that organizations are now overwhelmed and are scrambling to rectify the threats it poses. In this paper I will be using the terms “organization” and “firm” interchangeably. This topic is at the forefront of debate and concern for fortune 500 firms. In consideration of the magnitude and reality of the issues I felt compelled to take a deeper look into the topic. Moreover, I will use this opportunity to illustrate the complexity and seriousness of the issue. The task I am about to dive into will require a moderate overview of pension accounting. That is, I will dissect pension accounting from its roots and try to exemplify a story that has a clear beginning, but lacks any real practical ending. As such, in this paper I will cover the following areas in detail to demonstrate the perplexity that aluminates when this is topic is fetched from the dark holes of the financial statements and put into a context that is, too many, preposterous. This paper...
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...Traditional VS Islamic Financial Derivatives To: Prof. Naser Abu Mustafa By: Mwaffaq Al Jayousi & Mohammad Al Shdooh Abstract This study focuses the light on defining financial derivatives and briefly describe their different types (Options, Forwards, Futures, Swaps, etc.). At the same time it tries to find if these financial derivatives exists in the Arab world, how they are implemented, and if we have an Islamic alternatives for them. Introduction There is a big debate in the Arab world regarding the usage of financial derivatives, Wither they are legal according to Islam or not, and If they are illegal in Islam; are there any Islamic alternatives to them. First we have to ask our self: Is there any need to use derivatives? And why they recently became so popular in the western countries? The need for financial derivatives emerges when people realize that there must be a way to reduce the risk associated with the trading of different kinds of goods. Risks such as price fluctuations and the uncertainty about the future market conditions. And since there are some people who are willing to bear this risk instead of us, this market took off and recently because of the communications revolution it flourished. Then why these financial derivatives did not reach the Arab world? The answer is simply because they hugely rely on speculations and anticipation; which are considered illegal according to Islam. But someone can ask: if it is illegal in Islam, then how come we...
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......................................................................................................... 1 Observations on the different approaches ......................................................................... 1 Policy conclusions and recommendations ........................................................................ 3 Specific proposals ............................................................................................................. 4 CHAPTER 1: INTRODUCTION .......................................................................................................... 7 Purpose and activities........................................................................................................ 7 Authors’ general approach...
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...AUDIT PRACTICE & ASSURANCE SERVICES PROFESSIONAL 2 EXAMINATION - APRIL 2010 NOTES: SECTION A: Answer Question 1, and SECTION B: Answer any two from Questions 2, 3 and 4. (If you provide answers to more questions than required in Section B, you must draw a clearly distinguishable line through the answer not to be marked. Otherwise, only the first two questions to hand will be marked.) Time Allowed 3.5 hours, plus 20 minutes to read the paper. Examination Format This is an open book examination. Hard copy material may be consulted during this examination subject to the limitations advised on the Institute’s website. Reading Format During the reading time you may write notes on the examination paper but you may not commence writing in your answer booklet. Marks Marks for each question are shown. A mark of 50 or more is required to achieve a pass in this paper. Answers Start your answer to each question on a new page. You are reminded that candidates are expected to pay particular attention to their communication skills. Care must be taken regarding the format and literacy of the solutions. The marking system will take into account the content of the candidates’ answers and the extent to which the answers are supported with relevant legislation, case law or examples where appropriate. Answer Booklets List on the cover of each answer booklet, in the space provided the number of each question attempted. Additional instructions are shown on the front...
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...Restaurant Industry in India - Trends and Opportunities Restaurant Industry in India - Trends and Opportunities HVS International (India), Mr. Navjit Ahluwalia, Associate Director and Mr. Dushyant Singh, Consulting & Valuation Analyst Research, Report Writing Mr. Shyam Suri, Secretary General, FHRAI Editing, Report Fianlisation Mr. Pooran Chandra Pandey, Assistant Secretary General (Research), FHRAI Hotel Questionnaire & Co-ordination Mr. Raj Rajeshwar Sharma, Computer Data Assistant Design, Graphics, Pre-press & DTP Printed by : Published in April 2004 by: Secretary General, Federation of Hotel & Restaurant Associations of India B-82, 8th Floor, Himalaya House, 23 Kasturba Gandhi Marg, New Delhi - 110 001 Phones : (011) 23318781, 23318782, 23322634, 23322647, 23323770 Fax : (011) 23322645 E-Mail : fhrai@vsnl.com Website : www.fhrai.com © Federation of Hotel & Restaurant Associations of India (FHRAI), 2004 Price: One copy free to concerned FHRAI members. (Additional copies at Rs. 400.00 for FHRAI members and Rs.600.00 for Non-Members.) US$50.00 for foreign dispatches 2 Contents Table of Contents 1. 2. 3. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Background Scenario and Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Analysis of Questionnaire Responses 3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....
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