Financial Analysis Coursework Example | Topics and Well Written Essays - 1500 words

Financial Analysis - Coursework ExampleThey also state that the commercialize value is not determined by the dividend policy. In relation to the ir relevance of dividends, two theorems are applied these are Modigliani-Miller approach and symmetry theory (Thompson & Mathew 82). Q2. The major assumption behind the residual income valuation pose is the clean surplus relationship, that stresses the relationship among book value per overlap, dividends and earnings BV1 = BV0 + EPS1 - D1. It means that all the explanation profits and distribution to shareholders can be explained by changes in the book value. Another assumption is that the ohslon amaze comes from the information dynamics that brings together current information to future residual income. Consistent with Ohlsons information dynamics it is found out that residual empirical research income fol small(a)s a mean reverting process. In conclusion Ohlsons formulation of the residual income valuation model provides an economica l structure for incorporating information in earnings, book value and income forecasts. The fact that there are no taxes or difference in tax order is another major assumption made. The book value of equity subprograms the clean surplus approach that states earnings and net dividends modify book equity. The future residual income is overcome by the use of the equation below V0 = B0 + ?(RIt / (1 + r)t) = B0 + ? ((Et - r x Bt-1) / (1 + r)t) where V0 - value of a companys stock. B0 - present book value per share. Bt - book value per share at the end of period t. r - cost of equity. Et - future EPS for period t. RIt - residual income per share for period t. Q3. Francis and Schipper realized that in recent times, the value relevance of accounting information has been under constant scrutiny by the stock market researchers and set out to test it. Another test that they made use of is that of investigating the relationship between a set of independent accounting variables and security pr ice dependent variable. In order, to extend their tests to account for change in relevance over time, they made use of linear regression, which was an estimation technique that determined the value relevance of accounting data. Q4. The property of timeliness is an important utilisation in accrual accounting since it aligns the expense recognition and timing of revenue. Accountants produce an earnings variable by adding accruals to operating cash. Conservatism is defined as the imbalance between loss and gain recognition. Loss accruals are important in that they allow management compensation determine earnings quality and improving the receipts of financial statements generally. Journal of Accounting and Economics clearly outlines the effects of international institutional features on the accounting income properties as follows. The international differences in demand for accounting directly affect change in market value over time. Asymmetry by public disclosure is characterized b y the stakeholders and shareholders governance models of common and regulation law countries. Litigation, regulation and taxation cause variations within the common Law countries. The value strategies include low price to book ratio, buying low stocks and low price to cash flow ratio stocks. The major finding of these strategies is that it is a successful investment strategy in that the value stocks outperform the whole market and growth stocks. Q5. Lakonishok, Shleifer and