Derivatives Essay

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MSA: attempt how you might interpret current share price in the market. All info relating to future (valuation tools) to go through process of trying to understand value of a share in the market. This is not equivalent to valuation in Corporate Finance. In CF, you put assumptions and try to come up with a value/price. This is tep prior, we know shareprice and what assumptions would we have to make to get to that price. This enables if there is potential for under/over valuation. Then you can do strategic analysis. Plug in different values and if share price grows, it shows it might have some benefit to invest in. 1) change nature of operations 2) leave operatings but finance at lower cost of capital 3) tax management Ratio analysis: attempt to give you picture of a particular point in time from financial accounts. Accounting model: assets are not shown marked-to-market. Banks: overvalued assets. So only equity can save you. Model alone is not enough ( value based adjustments to get to the financial economics model. Financial economics ( things that you do for accounting reasons that would be disagreed with from financial economics point of view. R&D are expenses in accounting but in valuation it is an investment. So it is capitalized because it is considered as a capital for internal managerial purposes. Valuedrivers: first 5; operational improvement and last 2 are valuation drivers. Info on this gives quick and dirty to get information on market signals analysis. NEVER substitute for intrinsic valuation analysis. Data mining: garbage in, garbage out. Beer group changing to hotel sector. Measuring data against hotel sector with previous beer based returns is obviously not the way to get it right. Value shift: keep this in mind when you try to reconcile share price with what you believe to be happening in the business. Value shift & EMH:

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