The Islamia University of Bahawalpur

Department of Management Sciences

Investors Analysis
Dr. Amna Noor
 The Islamia University of Bahawalpur
Department of Management Sciences

Earnings Per Share

•  Earnings per share is net income, restated on a per share basis:

• Basic earnings per share is net income after preferred dividends, divided by the average number of common shares
outstanding.
• Diluted earnings per share is net income minus preferred dividends, divided by the number of shares outstanding
considering all dilutive securities.
• Book value per share is book value of equity divided by number of shares.
• Price-to-earnings ratio (PE or P/E) is the ratio of the price per share of equity to the earnings per share.
• If earnings are the last four quarters, it is the trailing P/E.
 The Islamia University of Bahawalpur
Department of Management Sciences

Corporate Value Model

• Also called the free cash flow method. Suggests the value of
the entire firm equals the present value of the firm’s free cash
flows.
• Remember, free cash flow is the firm’s after-tax operating
income less the net capital investment
• FCF = NOPAT – Net capital investment
 The Islamia University of Bahawalpur
Department of Management Sciences

• The free cash flow valuation model estimates the value of the entire
company and uses the cost of capital as the discount rate.
• As a result, the value of the firm’s debt and preferred stock must be
subtracted from the value of the company to estimate the value of
equity.

• MV of equity = MV of firm – (MV of debt + MV of Preferred share)

• Market Value of Shareholder’s equity:

MV of equity = Market price of share* No. of common shares outstanding
 
Operating Cash Flow Ratios

  𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑔 𝑐𝑎𝑠h 𝑓𝑙𝑜𝑤 − 𝑝𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑

O perating   cash   flow   per   share=   
𝐷𝑖𝑙𝑢𝑡𝑒𝑑 𝑤𝑒𝑖𝑔𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒𝑐𝑜𝑚𝑚𝑜𝑛 𝑠h𝑎𝑟𝑒 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑛𝑔

  𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑔 𝑐𝑎𝑠h 𝑓𝑙𝑜𝑤

O perating   cash   flow / Cash   Divident  =   
𝐶𝑎𝑠h 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑡