INTRODUCTION TO FINANCIAL INSTRUMENTS AND MARKETS Valuation multiples are often used to compare companies quickly. Identify...

INTRODUCTION TO FINANCIAL INSTRUMENTS AND MARKETS

Valuation multiples are often used to compare companies quickly. Identify an appropriate valuation multiple/ratio and evaluate if the company (Woolworths) is over or under valued using relative valuation. What are the reasons you picked the multiples that you did and how did you conclude that Woolworths is over or under valued? .

Current Price AU$36.01

Fair Value AU$36.01

Share price 31 march 2020 AU$35.10

Solutions

Expert Solution

There are two different types of valuation multiples: Equity Multiples and Enterprise Valuation Multiples.

Equity Multiples has four method to compute valuation ratio:

- Price Earning Ratio

- Price book Ratio

- Dividend Yield

- Price Sales Ratio

Enterprise Valuation Multiples has four method to compute valuation ratio:

- Enterprise Value / Revenue

- Enterprise Value/ Earnings before Interest, Tax, Depreciation, Amortization and Rental Costs

- Enterprise Value/ Earnings before Interest, Tax, Depreciation, Amortization

- Enterprise Value/ Invested Capital

As per the given information,

Current Price (EPS) is AU$ 36.01 and share Price(MPS) is AU$ 35.10

Hence, Price Earning Ratio is the most appropriate one to compute valuation ratio.

PE Ratio= Market price/ Earning per share

=35.10/36.01 = AU $0.975

The price of the Woolworth is undervalued as the Market price is lower than the earning per share.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Compare and contrast Money Markets and Capital Markets. In your description list the most financial instruments...

Compare and contrast Money Markets and Capital Markets. In your description list the most financial instruments trading on each market. Make sure that you always indicate what types of investors prefer what type of markets, assets and explain why?

Companies often enter into financial instruments that straddle the line between liability and equity classification in...

Companies often enter into financial instruments that straddle the line between liability and equity classification in the financial statements. These instruments are becoming increasingly common and complex as markets evolve. Although based on sound fundamentals, the model for distinguishing liabilities from equity can be difficult to apply— determining classification challenges. This is, in part, because the model can result in different classification for instruments with minor differences in contractual terms. And, classification is not solely a balance sheet matter. It...

Name five SPECIFIC examples of: Financial Markets Financial Institutions Financial Instruments

1.Which of the following is a commonly used cost approach in business valuation? Multiples analysis approach...

1.Which of the following is a commonly used cost approach in business valuation? Multiples analysis approach Capital cost approach Transaction cost analysis approach 2. The two market approaches commonly used in the business valuation are multiple analysis and: project analysis. transactions analysis. market analysis. NPV analysis. 3. The transaction approach is difficult to use because: transactions data are typically as reliable as the data available for multiples analysis, especially when they are associated with a private firm. transactions involving the...

QUESTION 21 The financial system is made up of financial institutions, instruments and markets. (a) Explain...

QUESTION 21 The financial system is made up of financial institutions, instruments and markets. (a) Explain the major role of a financial system. (b) Name and briefly explain the three major types of financial instruments that make up the financial system. (c) Name a type of non-bank financial institution, explain the role of your non-bank financial institution in the financial system and provide an example of both a source of funds and a use of funds for the non-bank financial...

Describe the significance of regulator, RBI and SEBI, and importance of Financial Markets and instruments in...

Describe the significance of regulator, RBI and SEBI, and importance of Financial Markets and instruments in the growth of the economy.

Identify the different types of financial markets and financial institutions, and explain how these markets and...

Identify the different types of financial markets and financial institutions, and explain how these markets and institutions enhance capital allocation.

Whatever be the condition of the economy, the financial markets have been improving very quickly. An...

Whatever be the condition of the economy, the financial markets have been improving very quickly. An investor with the ability to buy assets is looking at a portfolio and finds that the probability of stock A increasing in value is 50.6%. She also finds that if stock A increases in value then there is a 55% chance that stock B will also increase. However, if Stock A does not increase in value, then B increases in only 25% of the...

Our course has covered financial markets, instruments and institutions and their roles in the economy and...

Our course has covered financial markets, instruments and institutions and their roles in the economy and financial management. Write a paper that discusses financial markets, the instruments used in those markets and the institutions involved in the markets. Discuss the biblical passages that apply to financial institutions. Include the roles of money, investments and risk. Include a discussion about borrowing and the biblical principles involved in borrowing. Requirements: 3,500 words minimum whats thr question/comment?

What are the economic functions that are provided by the various financial instruments? Please compare and...

What are the economic functions that are provided by the various financial instruments? Please compare and contrast two instruments in either the money market or the capital market. What are the economic functions that are provided by the various financial institutions? Please compare and contrast two financial institutions.

Subjects