Stock Prices Change And Earnings Changes Essay Example | Topics and Well Written Essays - 1500 words

Stock Prices Change And Earnings Changes - Essay Example Forecasted free cash flows (operating profit + depreciation + amortization of goodwill - capital expenditures - cash taxes - change in working capital) are discounted to a present value using the company's weighted average costs of capital. DCF analysis shows that changes in long-term growth rates have the greatest impact on share valuation. Investors can also use the DCF model as a reality check. Instead of trying to come up with a target share price, they can plug in the current share price and, be working backward, calculate how fast the company would need to grow to justify the valuation. The lower the implied growth rate, the better - less growth has therefore already been "priced into" the stock The dividend discount model is a more conservative variation of discounted cash flows, that says a share of stock is worth the present value of its future dividends, rather than its earnings. The dividend discount model can be applied effectively only when a company is already distributing a significant amount of earnings as dividends. But in theory, it applies to all cases since even retained earnings should eventually turn into dividends. That's because once a company reaches its "mature" stage it won't need to reinvest in its growth, so management can begin distributing cash to the shareholders. (Plan "B" would be for the CEO to pursue some insane acquisition, just to gratify his bloated ego.) As Williams puts it, If earnings not paid out in dividends are all successfully reinvested... then these earnings should produce dividends later; if not, then they are money lost... In short, a stock is worth only what you can get out of it. We generally find earnings developed in three Anglo-Saxon countries—where capital is traditionally raised in public markets and reporting rules are unencumbered by taxation requirements—to have greater explanatory power for stock returns than cash flow metrics.

Economics Essay Example | Topics and Well Written Essays - 1000 words - 33

Economics - Essay Example Macroeconomics focuses on the international and national economic trends. Neoclassical economics pursues economics through means of demand and supply models, which determine prices on the basis of subjective preferences of consumers and producers. Neoclassical economics depends on subjective preferences in determining prices. Sustainability is associated to the quality of life in a society. It determines whether the environmental, social and economic systems, which make up the society, are offering a productive, meaningful and healthy life for the current and future generations. Sustainable development is the growth, which satisfies the requirements of existing generations without compromising the capability of upcoming generations to satisfy their requirements. There are three features of sustainable development; economic sustainability, environmental sustainability and social sustainability. Environmental sustainability is described as sustenance of life supporting systems. Economic sustainability is described as sustenance of economic capital. It refers to the maximum amount of revenue, which may be spent without diminishing future consumption. Social sustainability is described as sustenance of social resources. Sustainable growth should integrate these categories of sustainability and employ them in ensuring that development is sustainable. There are developments of the new economic ideas in the modern economy. The world economy has experienced various economic conditions and new ideas are evolving, complementing the traditional economic ideas. The following are the alternative economic ideas in the modern economy. First, modern economies are considering shifting from outsourcing to in-sourcing. Economies are encouraging local production to enhance domestic employment. Another idea includes the accessing of wealth of the locals; information and communication technologies are changing