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Brokers Awareness program
Dr. Mounther Barakat
Securities and Commodities Authority
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برنامج توعية الوسطاء
د. منذر بركات العمري
هيئة االوراق المالية والسلع
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Quantity of Funds Demanded
Interest rates are determined by the demand and supply on funds.
Factors to affect interest rates are: Higher expected income Economic growth Government budget deficit inflation
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Fisher Equation I= Real rate of interest+ expected
inflation Any change in the two will drive
interest rates This is the risk free rate, risk
premiums to be added. DRP, LP, MRP, CP, Conv. Disc., put.
Disc., ….
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The Pure Expectations Theory Assume:
bond buyers do not have any preference about maturityi.e.bonds of different maturities are perfect substitutes
LT = long-term ST = short-term
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Liquidity Theory assume:
bonds of different maturities are imperfect substitutes,and investors PREFER ST bonds because they are more liquid.
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Preferred Habitat Theory assume:
bonds of different maturities are imperfect substitutes,and investor preference for ST bonds OR LT bonds is not constant
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Segmented Markets Theory assume:
bonds of different maturities are NOT substitutes at all and are determined in isolation of one another.
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The Annual Reportالسنوي التقرير
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.
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Balance Sheet: Assetsاالصول - المالي المركز قائمة
CashA/RInventories
Total CAGross FALess: Dep.
Net FATotal Assets
20067,282
632,1601,287,3601,926,8021,202,950 263,160 939,7902,866,592
200557,600
351,200 715,2001,124,000
491,000 146,200 344,8001,468,800
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Balance sheet: Liabilities and Equityالملكية – وحقوق الخصوم المالي المركز قائمة
Accts payableNotes payableAccruals
Total CLLong-term debtCommon stockRetained earnings
Total EquityTotal L & E
2006524,160
636,808 489,6001,650,568
723,432460,000
32,592 492,5922,866,592
2005145,600200,000
136,000481,600323,432460,000
203,768 663,7681,468,800
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Income statementالدخل قائمة
SalesCOGSOther expenses
EBITDADepr. & Amort.
EBITInterest Exp.EBTTaxesNet income
20066,034,000
5,528,000 519,988
(13,988) 116,960(130,948) 136,012(266,960)
(106,784) (160,176)
20053,432,0002,864,000 358,672
209,328 18,900
190,428 43,828
146,600 58,640
87,960
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Other dataأخرى معلومات
No. of sharesEPSDPSStock price
2006100,000-$1.602
$0.11$2.25
2005100,000
$0.88$0.22$8.50
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Did the expansion create additional net operating after taxes (NOPAT)?
الضريبة بعد التشغيلي الدخل حساباتNOPAT = EBIT (1 – Tax rate)
NOPAT06 = -$130,948(1 – 0.4)= -$130,948(0.6)= -$78,569
NOPAT05 = $114,257
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What effect did the expansion have on net operating working capital?
العمل المال رأس صافي حساباتNOWC = Current - Non-interest
assets bearing CL
NOWC06 = ($7,282 + $632,160 + $1,287,360) – ( $524,160 + $489,600)= $913,042
NOWC05 = $842,400
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What effect did the expansion have on operating capital?
التشغيلي المال رأس حساباتOperating capital = NOWC + Net Fixed Assets
Operating Capital06 = $913,042 + $939,790 = $1,852,832
Operating Capital05 = $1,187,200
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What is your assessment of the expansion’s effect on operations?
التشغيل حسابات من مالحظات SalesNOPATNOWCOperating capitalNet Income
2006 $6,034,000
-$78,569$913,042
$1,852,832-$160,176
2005 $3,432,00
0$114,257$842,400
$1,187,200
$87,960
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What was the free cash flow (FCF) for 2002?الحر النقدي التدفق حساب
FCF06 = NOPAT – Net capital investment
= -$78,569 – ($1,852,832 - $1,187,200)= -$744,201
Is negative free cash flow always a bad sign?
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Economic Value Added (EVA)المضافة القيمة حساب
EVA = After-tax __ After-tax Operating Income Capital costs
= Funds Available __Cost of to Investors Capital Used
= NOPAT – After-tax Cost of Capital
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EVA Conceptsالمضافة االقتصادية القيمة مفهوم
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.
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What is the firm’s EVA? Assume the firm’s after-tax percentage cost of capital was 10% in 2000 and 13% in 2001.
المضافة االقتصادية القيمة حساب
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
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Did the expansion increase or decrease MVA?المضافة السوقية القيم�ة حساب
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.
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Calculating Key Multipliersالمضاعفات مثال - حساب
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
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Calculating Key Multipliersمثال - المضاعفات حساب
M/B = Mkt price per share / Book value per share= $12.17 / ($1,952 / 250) = 1.56x
2007* 2006 2005 Ind.P/E 12.0x -1.4x 9.7x 14.2x
P/CF 8.21x -5.2x 8.0x 11.0xM/B 1.56x 0.5x 1.3x 2.4x
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Analyzing the multipliersالمضاعفات تحليل
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.
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Trend analysisالنمطية تحليل
Analyzes a firm’s financial ratios over time
Can be used to estimate the likelihood of improvement or deterioration in financial condition.
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Potential uses of freed up cashالحر النقدي التدفق استخدامات
Repurchase stock Expand business Reduce debt All these actions would likely improve the
stock price.
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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.
Margin Tradingبالهامش االتجار
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Margin Tradingاالتجار 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.%.
Calculate your profits and losses in the case of 10% price move in both directions.
Calculate the minimum price before getting a margin call.
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Margin Tradingبالهامش االتجار
Assets DHS Liabilities & Equity
DHS
1000 shares @ 10
10000 Loan 5000
Equity 5000TA 10000 TC 1000
0
Price @ DHS10
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Margin Tradingبالهامش االتجار
Assets DHS Liabilities & Equity
DHS
1000 shares @ 11
11000 Loan 5000
Equity 6000TA 11000 TC 1100
0
Price up by 10% @ DHS11
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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%
Margin Tradingبالهامش االتجار
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Margin Tradingبالهامش االتجار
Assets DHS Liabilities & Equity
DHS
1000 shares @ 9
9000 Loan 5000
Equity 4000
TA 9000 TC 9000
Price down by 10% @ DHS9
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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%
Margin Tradingبالهامش االتجار
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Margin Tradingبالهامش االتجار
The minimum price before hitting the first margin call is:
P=(IM*P0)/(1-MM)
In our example:P=(.5*10)/(1-.375)=8
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Margin Tradingبالهامش االتجار
Assets DHS Liabilities & Equity
DHS
1000 shares @ 8
8000 Loan 5000
Equity 3000
TA 8000 TC 8000
Price @ DHS11 which the margin call price.
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Margin Tradingبالهامش االتجار
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%
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Margin Tradingبالهامش االتجار
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-EqCash= 8*1000*0.5-3000
= 1000
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Margin Tradingبالهامش االتجار
Assets DHS Liabilities & Equity
DHS
1000 shares @ 8
8000 Loan 5000
Cash 1000 Equity 4000
TA 9000 TC 9000Your margin now is: M=Eq/Inv. =
4000/8000= 50% back to IM.
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Margin Tradingبالهامش االتجار
See XLS file for further training