财务管理中的一些概念

1. Alpha value

Share’s alpha value is a measure of its abnormal return, which is the amount by which the share’s returns are currently above or below the required return, given the level of systematic risk. If it is positive, investors who don’t hold shares will be tempted to buy them to take advantage of the abnormal return, and investors who do hold shares will want to hold on to them so share price will rise. If it is negative, investors won’t want to buy them, and current holders will want to sell them, so share price will fall.

Current return=expected return+- alpha value

2. Arbitrage pricing model

In CAPM model, single factor is considered, but in APM, it assumes that the return on securities is based on a number of independent factors.

3. Investment decisions

•Organic growth

The companies expand or diversify by developing their own internal resources.

•Growth by acquisition

It provides a means of entering a market, or building up a market share more quickly and or at lower cost than would be incurred if the company tries to develop its own resources.

4. Financing decisions

•Short-term source: overdraft, short-term loan, trade credit, leasing.

•Long-term source: bond, issue shares.

•Pecking order: retained earnings, debt, equity

5. EVA ^TM

EVA=NOPAT-(Cost of capital×Capital employed)

NOPAT is net operating profit after tax adjusted for non-cash expenses

 

6. Scrip dividends

It is a dividend paid by the issue of additional company shares rather than by cash.

7. The residual theory of dividend payments

Firm only pay dividends if all the profitable investment opportunities have been funded. It assumes that internal funds are the cheapest source of financing, and the company will resort to external financing only if the available internal funds, current and retained earnings have been exhausted.