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Brokers Awareness program (4)

Brokers Awareness program (4)

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Brokers Awareness program (4)

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  1. Brokers Awareness program(4) Dr. Mounther Barakat Securities and Commodities Authority

  2. برنامج توعية الوسطاء اللقاء الرابع د. منذر بركات العمري هيئة الاوراق المالية والسلع

  3. The Annual Reportالتقرير السنوي • Balance sheet – provides a snapshot of a firm’s financial position at one point in time. • Income statement – summarizes a firm’s revenues and expenses over a given period of time. • Statement of retained earnings – shows how much of the firm’s earnings were retained, rather than paid out as dividends. • Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.

  4. 2006 7,282 632,160 1,287,360 1,926,802 1,202,950 263,160 939,790 2,866,592 2005 57,600 351,200 715,200 1,124,000 491,000 146,200 344,800 1,468,800 Balance Sheet: Assetsقائمة المركز المالي - الاصول Cash A/R Inventories Total CA Gross FA Less: Dep. Net FA Total Assets

  5. 2006 524,160 636,808 489,600 1,650,568 723,432 460,000 32,592 492,592 2,866,592 2005 145,600 200,000 136,000 481,600 323,432 460,000 203,768 663,768 1,468,800 Balance sheet: Liabilities and Equityقائمة المركز المالي – الخصوم وحقوق الملكية Accts payable Notes payable Accruals Total CL Long-term debt Common stock Retained earnings Total Equity Total L & E

  6. Income statementقائمة الدخل Sales COGS Other expenses EBITDA Depr. & Amort. EBIT Interest Exp. EBT Taxes Net income 2006 6,034,000 5,528,000 519,988 (13,988) 116,960 (130,948) 136,012 (266,960) (106,784) (160,176) 2005 3,432,000 2,864,000 358,672 209,328 18,900 190,428 43,828 146,600 58,640 87,960

  7. 2006 100,000 -$1.602 $0.11 $2.25 2005 100,000 $0.88 $0.22 $8.50 Other dataمعلومات أخرى No. of shares EPS DPS Stock price

  8. Did the expansion create additional net operating after taxes (NOPAT)?حسابات الدخل التشغيلي بعد الضريبة NOPAT = EBIT (1 – Tax rate) NOPAT06 = -$130,948(1 – 0.4) = -$130,948(0.6) = -$78,569 NOPAT05= $114,257

  9. What effect did the expansion have on net operating working capital?حسابات صافي رأس المال العمل NOWC = Current - Non-interest assets bearing CL NOWC06 = ($7,282 + $632,160 + $1,287,360) – ( $524,160 + $489,600) = $913,042 NOWC05 = $842,400

  10. What effect did the expansion have on operating capital?حسابات رأس المال التشغيلي Operating capital = NOWC + Net Fixed Assets Operating Capital06 = $913,042 + $939,790 = $1,852,832 Operating Capital05 = $1,187,200

  11. What is your assessment of the expansion’s effect on operations?ملاحظات من حسابات التشغيل Sales NOPAT NOWC Operating capital Net Income 2006 $6,034,000 -$78,569 $913,042 $1,852,832 -$160,176 2005 $3,432,000 $114,257 $842,400 $1,187,200 $87,960

  12. What was the free cash flow (FCF) for 2002?حساب التدفق النقدي الحر FCF06 = NOPAT – Net capital investment = -$78,569 – ($1,852,832 - $1,187,200) = -$744,201 Is negative free cash flow always a bad sign?

  13. Economic Value Added (EVA)حساب القيمة المضافة EVA = After-tax __ After-tax Operating Income Capital costs = Funds Available __ Cost of to Investors Capital Used = NOPAT – After-tax Cost of Capital

  14. EVA Conceptsمفهوم القيمة الاقتصادية المضافة • In order to generate positive EVA, a firm has to more than just cover operating costs. It must also provide a return to those who have provided the firm with capital. • EVA takes into account the total cost of capital, which includes the cost of equity.

  15. What is the firm’s EVA? Assume the firm’s after-tax percentage cost of capital was 10% in 2000 and 13% in 2001.حساب القيمة الاقتصادية المضافة EVA06 = NOPAT – (A-T cost of capital) (Capital) = -$78,569 – (0.13)($1,852,832) = -$78,569 - $240,868 = -$319,437 EVA05 = $114,257 – (0.10)($1,187,200) = $114,257 - $118,720 = -$4,463

  16. Did the expansion increase or decrease MVA?حساب القيمة السوقية المضافة MVA = Market value __ Equity capital of equity supplied It measures the value added to the company from its activities since its inception. Can not tell who did what.

  17. Calculating Key Multipliersحساب المضاعفات - مثال P/E = Price / Earnings per share = $12.17 / $1.014 = 12.0x P/CF = Price / Cash flow per share = $12.17 / [($253.6 + $117.0) ÷ 250] = 8.21x

  18. Calculating Key Multipliersحساب المضاعفات - مثال M/B = Mkt price per share / Book value per share = $12.17 / ($1,952 / 250) = 1.56x

  19. Analyzing the multipliersتحليل المضاعفات • P/E: How much investors are willing to pay for $1 of earnings. • P/CF: How much investors are willing to pay for $1 of cash flow. • M/B: How much investors are willing to pay for $1 of book value equity. • For each ratio, the higher the number, the better. • P/E and M/B are high if ROE is high and risk is low.

  20. Trend analysisتحليل النمطية • Analyzes a firm’s financial ratios over time • Can be used to estimate the likelihood of improvement or deterioration in financial condition.

  21. Potential uses of freed up cashاستخدامات التدفق النقدي الحر • Repurchase stock • Expand business • Reduce debt • All these actions would likely improve the stock price.

  22. Margin Tradingالاتجار بالهامش • Margin is the amount you put up to trade without paying the full balance. • Initial margin (IM) is the value of your equity in the margin trade. • Maintenance margin (MM) is the minimum equity you need to maintain at all time. • Margin call (MC) is the amount that you need to put up to bring your equity back to the initial margin.

  23. Margin Tradingالاتجار بالهامش • XYZ is now selling at DHS10. You have DHS5000 and would like to purchase 1000 shares. Your broker is willing to extend you a loan at the call money rate+2% for processing and other costs. Maintenance margin is 37.5%. • Calculate your profits and losses in the case of 10% price move in both directions. • Calculate the minimum price before getting a margin call.

  24. Margin Tradingالاتجار بالهامش Price @ DHS10

  25. Margin Tradingالاتجار بالهامش Price up by 10% @ DHS11

  26. Margin Tradingالاتجار بالهامش • Return with and without use of margins. • Without margin: R=(11000-10000)/10000=10%. • With margin: R=(6000-5000)/5000=20%. • Your margin is 6000/11000=54.54%

  27. Margin Tradingالاتجار بالهامش Price down by 10% @ DHS9

  28. Margin Tradingالاتجار بالهامش • Return with and without use of margins. • Without margin: R= (9000-10000)/10000= -10%. • With margin: R= (4000- 5000)/ 5000= -20%. • Your margin is 4000/9000=44.44%

  29. Margin Tradingالاتجار بالهامش • The minimum price before hitting the first margin call is: P=(IM*P0)/(1-MM) • In our example: P=(.5*10)/(1-.375)=8

  30. Margin Tradingالاتجار بالهامش Price @ DHS11 which the margin call price.

  31. Margin Tradingالاتجار بالهامش • Return with and without use of margins. • Without margin: R= (8000-10000)/10000= -20%. • With margin: R= (3000- 5000)/ 5000= -40%. • Your margin is 3000/8000=37.5%

  32. Margin Tradingالاتجار بالهامش • Need to add cash to the account to go back to 50% or as agreed with the broker. • Margin call calculations: cash = P*N*IM-Eq Cash= 8*1000*0.5-3000 = 1000

  33. Margin Tradingالاتجار بالهامش Your margin now is: M=Eq/Inv. = 4000/8000= 50% back to IM.

  34. Margin Tradingالاتجار بالهامش • See XLS file for further training

  35. Short Selling and Marginsالهامش والبيع على المكشوف • Margin is the amount of cash you put up as a security against the increase in your liability due to short selling. • Initial margin (IM) is the value of your cash balance against the short sold position (liability). • Maintenance margin (MM) is the minimum equity you need to maintain at all time. • Margin call (MC) is the amount that you need to put up to bring your equity back to the initial margin.

  36. Short Selling and Marginsالهامش والبيع على المكشوف • XYZ is now selling at DHS10. You would like to short 1000 shares. Your broker requires a 50% cash margin paid up front. Maintenance margin is 37.5%. • Calculate your profits and losses in the case of 5% price move in both directions. • Calculate the minimum price before getting a margin call.

  37. Short Selling and Marginsالهامش والبيع على المكشوف Price @ DHS10

  38. Short Selling and Marginsالهامش والبيع على المكشوف Price up by 5% @ DHS10.50

  39. Short Selling and Marginsالهامش والبيع على المكشوف • Return with and without use of short selling. • Without short selling: R=(10500-10000)/10000=5%. • With short selling: R=(4500-5000)/5000=-10%. • Your margin is: 4500/10500=42.86%

  40. Short Selling and Marginsالهامش والبيع على المكشوف Price down by 5% @ DHS9.5

  41. Short Selling and Marginsالهامش والبيع على المكشوف • Return with and without use of short selling. • Without short selling: R=(9500-10000)/10000=-5%. • With short selling: R=(5500-5000)/5000=10%. • Your margin is 5500/9500=57.89%

  42. Short Selling and Marginsالهامش والبيع على المكشوف • The minimum price before hitting the first margin call is: P=P0*(1+IM)/(1+MM) • In our example: P=10*(1+.5)/(1+.375)=10.909

  43. Short Selling and Marginsالهامش والبيع على المكشوف Price @ DHS10.909

  44. Short Selling and Marginsالهامش والبيع على المكشوف • Return with and without use of short selling. • Without short selling: R=(10909-10000)/10000=9.09%. • With short selling: R=(4091-5000)/5000=-18.18%. • Your margin is 5500/9500=37.5%

  45. Short Selling and Marginsالهامش والبيع على المكشوف Price @ DHS12

  46. Short Selling and Marginsالهامش والبيع على المكشوف • The position now is 12000 and the equity is 3000. • The drop in equity is equal to the difference between the initial position and the current position value. • That makes our margin below the 37.5% maintenance margin. • Cash is needed to go back to the initial margin.

  47. Short Selling and Marginsالهامش والبيع على المكشوف • Need to add cash to the account to go back to 50% or as agreed with the broker. • The drop in equity is equal to: Current position – initial position 12000-10000 = 2000 • The value of current equity is equal to the initial equity – the drop 5000-2000 = 3000 • The margin now is equal to Current equity/current position 3000/12000= 25% • This less than the 37.5% maintenance margin. To go back to the initial margin, we need to add cash to answer the margin call.

  48. Short Selling and Marginsالهامش والبيع على المكشوف • To go back to the initial margin of 50% we need to make equity equal to half the current liability position: IM*P1*N= 0.5*12*1000 = 6000 • Margin call calculations: Margin call amount = Current Equity requirement-Current equity 6000-3000 = 3000

  49. Short Selling and Marginsالهامش والبيع على المكشوف • See XLS file for further training

  50. Advanced Margin Calculationsحسابات هامش اكثر تعقيدا • Margin Accounts can become very complex especially if there are multiple diverse transactions. • An example would be to calculate the margin requirements for buying a stock on margin and short selling another. • Or, you may want to add to that some other securities purchased without the use of margin. • Or, add to all of the above margin calculations for futures contracts and options premiums. • Will revisit later on.