FINA 410 Lecture Notes - Lecture 11: Financial Statement, Autoregressive Integrated Moving Average, Absolute Difference
26 Jan 2017
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Value of firm come from either: assets i(cid:374) pla(cid:272)e: asset it o(cid:449)(cid:374)s (cid:374)o(cid:449) that ge(cid:374)e(cid:396)ate cf"s, g(cid:396)o(cid:449)th assets: assets it is e(cid:454)pe(cid:272)ted to a(cid:272)(cid:395)ui(cid:396)e i(cid:374) the futu(cid:396)e that (cid:449)ill ge(cid:374)e(cid:396)ate cf"s. Accounting balance sheets do a poor job summarizing the values of the assets of the firm because they ignore the largest component of value future growth: even worse for firms that invest in r&d. Historical growth this section begins by looking at measurement issues that arise when estimating past growth, and the considers how past growth can be used in projections. Measurement problems: historical growth depends on sample size, depends on how the average is estimated, whether you allow for compounding over time, presence of negative earnings in the past or current period. Geometric mean takes into account the compounding that occurs: more accurate measure of true growth, especially for firms with volatile earnings and revenues.
