Marketing management and

financial institutions

AFTER MID-TERM
MISS: EMAN ELFAR

1-1
 Market Equilibrium

When the market is in the equilibrium point , the

expected returns can be predict by estimating dividends
and expected capital gains. While the required returns
are predicted by estimating risk and applying the CAPM.

-In equilibrium, the stock price is stable. Also the expected

return must equal required returns.

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 Efficient market Hypothesis
(EMH)
There are four basic hypothesis of efficient market :

 Large number of market participants ( investors, analysts,

and traders)

 Availability of information

 Little impediments to trading

(Arbitrage refers to buying an assets in one market and be
able to selling it at high price in another market.

 Low cost of trans action and information

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Types of Efficient Market
Weak-form efficiency : In this market
 current security prices reflect current available security
market data( only historical data(private) are available).
 The investor can’t predict the future direction of security.
 Investor can’t achieve positive risk –adjustment return.
 Depending on technical analysis
Semi- strong form efficiency :
 current security prices reflect publically available information.
 Investor can’t achieve positive risk –adjustment return.
 Depending on Fundamental analysis .
 Types of Efficient Market

strong-form efficiency : In this market

 current security prices reflect all information (past – public –
private) both from public and private sources.
 The investor can predict the future direction of security.
 Investor achieve positive abnormal returns.
 Depending on both fundamental and technical analysis .

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Technical analysis charts

Line chart – A line chart measures only the closing price

and connects each day’s close into a line
Technical analysis charts

Candlestick charts: the box will be clear if the closing

price is higher than the opening price. On the other hand, the
box will be filled if the close is lower than the opening price .
Technical analysis charts

Head and shoulders pattern: is used to predict a

price target for ensuing ( next) downtrend. Head represent the
highest price , while the neckline represent the key support level
to watch for a breakdown and trend reversal
 Corporate value model

It is also called the free cash flow method:

FCF= NOPAT – NET capital investment

FCF : free cash flow

NOPAT : after-tax operating system

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Corporate value model using
free cash flow model
FCFF= net income + depreciation+ (I (1 ͯ t) – fixed capital
investment – working capital investment

FCFE= net income + depreciation+ (I (1 ͯ t) – fixed capital

investment – working capital investment + net borrowing

FCFE : free cash flow of Equity

FCFF: Free cash flow of equity
I: interest expense T : tax rate
Depreciation : non cash charges
EV/ EPITDA multiple: is used to determine the value of the
firm

EPITDA : earning before interest, tax , depreciation ,

Amortization

EV : enterprise value MV: market value

Corporate value model using
adjusted book value
Adjusted book value= market value of assets –
market value of liabilities
Difference between common stock
and preferred stock
 Solve the following problem

Given the following information calculate Price to cash flow

per share & price to sales per share & price to Earning per
share ratio
Earning per share 55.6
Net revenue 77.3
Net cash flow from operation 17.90
Stock price 11.4
Shares outstanding 4.476

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 Solve the following problem

Given the following information calculate Company ‘s ratio

of price to adjusted book value:
Cash& cash equivalents 0.4 Current liabilities 1
Accounts receivable 1.2 long term liabilities 61
Inventories 40 common equity 15.6
Investment securities 6 current market price per share = 15
Property, plant & equipment 30 No. shares outstanding = 1

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 Solve the following problem

Given the following information calculate estimated value

per share using assets valuation approach :
Cash 5000 accounts payable 10000
Accounts receivable 15000 notes payable 15000
Inventories 25000 long term debt 15.6
Net fixed assets 80000 common equity 60000
Market value of long- term debt = 45000
Market value of A/R and inventory =90% of reported value
Market value of net fixed assets =120 % of reported value
No. shares outstanding = 7000

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 Solve the following problem

Given the following information calculate free cash flow to

the firm( FCFF) and free cash flow to equity(FCFE) :
Net income 2100
NON cash charges 400
Interest expense 300
Firm’s tax rate 30%
Capital expenditures 200
Working capital expenditures 0
Net borrowing 1600

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 Solve the following problem

Given the following information calculate value per share

of the company common stock
EBITDA 65.8
Value of debt 90
Value of preferred 25.4
Cash and marketable securities 6.9
No. of common shares outstanding 12.5
EV/ EPITDA multiple 6

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 True or false:

1) In efficient market, there is a frequent changes in stock price.

2) Efficient market contains large number of investors.
3) To be efficient , the market must limit traded stock .
4) When the cost of information is high, the market will be efficient.
5) In weak – efficient market, stock price reflect private information
6) In semi strong efficient market, the investors depend on technical
analysis
7) In weak – efficient market, stock price prediction can be easily done.
8) When the market is strongly efficient the public information will be
available.

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 True or false:

9) When the market is strongly efficient the public information will be

available.
10) investors cannot achieve positive returns in weak efficient market
11) In strong efficient market , investors can depend on fundamental
analysis only.
12) line chart show only closing price of stock.
13) The clear box in candlestick charts show that the closing price is greater
than the opening price.
14) The analysts using head and shoulders charts to predict next downtrend.
15) In head and shoulders chart, the head represent the highest price.

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 MCQ

1. In technical analysis, this graph represent

1. Line charts
2. bar charts
3. Head and shoulder chart
4. Candlestick charts

2. In candlestick charts , the filled box mean :

1. The opening price is greater than closing price
2. The closing price is equal to opening price
3. The market is efficient
4. The closing price is greater than opening price

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 MCQ

1. In weak efficiency form,……… information will be available .

1. Public only
2. Private only
3. Either public or private
4. Both public and private

2. In strong form efficiency, analysts depend on :

1. Fundamental analysis only
2. Technical analysis only
3. Both technical and fundamental analysis
4. PEST analysis

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