Company Data Fancy Flatware Standard Silverware Shiny Silver Shares outstanding 5 million 10 million 500,000 Price per share $35.00 $47.00 NA Earnings per share $2.20 $3.13 $2.60 Free cash flow per share $1.63 $2.54 $2.00 Book value per share $16.00 $20.00 $18.00 Total assets $115 million $250 million $11 Million Total debt $35 million $50 million $2 million Calculate debt/total assets and ROE for Fancy, Standard, and Shiny
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Shiny Silver, a small cutlery manufacturer, is planning to go public with an initial public offering of common stock, and it needs to determine an appropriate price for the stock. The company and its investment banker believe that the proper procedure is to conduct a valuation and select several similar publicly traded firms to make relevant comparisons. Several cutlery manufacturers are reasonably similar to Shiny Silver with respect to product mix, asset composition, and debt/equity proportions. Of these companies, Fancy Flatware and Standard Silverware are the most similar, with the following data:
| Company Data | Fancy Flatware | Standard Silverware | Shiny Silver |
| Shares outstanding | 5 million | 10 million | 500,000 |
| Price per share | $35.00 | $47.00 | NA |
| Earnings per share | $2.20 | $3.13 | $2.60 |
| $1.63 | $2.54 | $2.00 | |
| Book value per share | $16.00 | $20.00 | $18.00 |
| Total assets | $115 million | $250 million | $11 Million |
| Total debt | $35 million | $50 million | $2 million |
Calculate debt/total assets and ROE for Fancy, Standard, and Shiny
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