It also has strategies to invest in value stocks, which have high book-to-market ratio and constantly outperformed growth stocks. DFA considers itself as a passive manager because in general DFA sold shares only if a stock no longer fit the portfolio it was in- if a small stock became large, or a value stock became a growth stock. So the constant change of the portfolio structure can be considered as one passive aspect of its strategy whereas precisely matching the holdings of the index portfolio would require DFA to buy discounted stocks in large blocks in which DFA’s traders took several steps to minimize the likelihood that they were being sold a lemon. 2) Who are DFA’s clients, and what are their concerns? What new clients is DFA trying to serve, and what are some of the new issues DFA will face in meeting these clients’ needs?
• Different investors have different views about which screening metrics an investor should use to reduce the number of mutual funds down to a more manageable set for evaluation in detail. Even the criticism about the rating, it offered value to investors for reference. For example, an evaluation system, which takes in to account the future perspective, can’t promise the return and its forecast precision, just like the analyst report. Hence, there are still some investors see Morningstar ratings as one of the resource to find winning mutual funds (2) Based on the case, we noticed that Morningstar ratings are indicators of past performance, and should not be used
The first weakness is that as more stocks are outstanding, the amount of dividends payable increases. The value of the stock may also decrease if there are too many shares available. Another disadvantage is that stock financing is not tax deductible. Finally, as stocks are issued, there are more shareholders to please. Organizations face many opportunities when selecting a means to meet capital needs.
This is because according to Elliot (1986), it stated that historical cost assumes money holds a constant purchasing power. The specific price-level changes (shifts in customer preference and advances in technology), inflation, and fluctuation in exchange rates for currencies that happen in the modern economy cause this assumption less valid. Furthermore, historical cost does not consider the changes in price. In times of rising prices, the companies tend to overstate the profits and distribution of the profits to the shareholders will cause trouble to the company. This is because the historical cost does not
Monopoly and Price Discrimination What we called monopoly is the sole seller if the product and that product do not have close substitutes. Monopoly can control the prices of their goods, but their profit is not limited because high prices reduce the amount that their consumers buy. The most important cause of monopoly is barriers to entry. The three main sources are owned by a single firm, the government gives a single firm the exclusive right to produce some good or services, and the cost of production makes a single producer more efficient than a large number of producers like the distribution of water. Monopoly is the sole producer in the market; its demand curve is the market demand.
That’s greed. The incentive to do these things is to be as successful as possible. That is the “American Dream.” That is why the US is the way it is today. Capitalism does have its strengths and weaknesses but the strengths outweigh the weaknesses. For example, greed causes businessmen to compete with other businessmen, thus, keeping prices reasonable and forces them to keep up with consumer demands.
Gore to screen the best acquisition targets for its business without threatening its own unique culture. From a financial perspective, mergers and acquisitions can be costly mistakes for companies who pursue aggressive or large deals. Academic literature has shown with empirical evidence that the most successful transactions, as measured by excess returns, are done when a company acquires private business units or companies, within the same industry as the acquirer and are financed through cash. Large deals, which involve public acquisitions that are financed by equity often, result in financial overinvestment and burden on the part of the company and shareholders. It is important to note that W.L.
* WACC is the weighted average cost of capital. WACC will tell investors and lenders what the opportunity cost of investing is. Most people who calculate WACC will not get the same WACC because people interpret financials difference and look at the valuation differently. Even though it is calculated differently it is important that investors know what WACC means when they see it in an analysis so they know it is the opportunity cost. WACC is the minimum return required by the investors * As I said in the last bullet there are many different to interpret the numbers in WACC and the way Cohen did it is one way but there is different ways to interpret the data given.
Computed by deducting the cost of capital from the after-tax profit, it is said to be the best measure of the true profitability of an enterprise because it is tied to cash flow and not earnings per share. Many analysts would agree that EVA is more positively associated with a company’s stock price than ROE or EPS. Keith confirmed his findings with an industry analyst, which posed him with the decision of whether of not to implement this calculation into OSI accounting practices. Furthermore, would it be a beneficial tool to be used for evaluating the new manager’s incentive compensation plans? The EVA trend seems to be almost mandatory for the larger companies, but there is no reason that it shouldn’t work just as well for their smaller firm.
DFA roughly believed in efficient market theory. They believed that the high return of small stocks and value stocks come from high risk which matched the efficient market theory. Moreover, they would not do any fundamental analysis of the firm in question. (p6) At the same time, however, they did some adjustments based on other two principles, sound academic researches and skilled traders, to get rid of those not matching the theory. For example, they did not purchase those stocks with inside trade information.