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Contents
About the Author 9
Part I: An Introduction 10
1 An Overview 11
Introduction 11
1.1 Some Observations on Traditional Finance Theory 11
1.2 Some Observations on Stock Market Volatility 12
Summary and Conclusions 15
Selected References 17
Part II: Share Valuation Theories 18
2 How to Value a Share 19
Introduction 19
2.1 The Capitalisation Concept 19
2.2 The Capitalisation of Dividends and Earnings 20
2.3 The Capitalisation of Current Maintainable Yield 23
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2.4 The Capitalisation of Earnings 23
Summary and Conclusions 26
Selected References 27
3 The Role of Dividend Policy 28
Introduction 28
3.1 The Gordon Growth Model 28
3.2 Gordon’s ‘Bird in the Hand’ Model 31
Summary and Conclusions 34
Selected References 34
4 Dividend Irrelevancy 35
Introduction 35
4.1 The MM Dividend Irrelevancy Hypothesis 35
4.2 The MM Hypothesis and Shareholder Reaction 37
4.3 The MM Hypothesis: A Corporate Perspective 39
Summary and Conclusions 41
Selected References 42
Part III: A Guide to Stock Market Investment 43
5 How to Read Stock Exchange Listings 44
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360° thinking .
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Introduction 44
5.1 Stock Exchange Listings 44
Summary and Conclusions 49
Selected References 50
6 Strategies for Investment (I) 51
Introduction 51
6.1 Dividends as Income 53
6.2 Dividends for Growth 55
6.3 The Price-Earnings Ratio: Past and Future 56
Summary and Conclusions 58
Selected References 59
7 Strategies for Investment (II) 60
Introduction 60
7.1 Corporate Information 60
7.2 “Beating” the Market 63
Summary and Conclusions 66
Selected References 66
Part IV: Valuation and Takeover 67
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8 A Stock Exchange Valuation 68
Introduction 68
8.1 Coming to the Market 69
8.2 Calculations and Assumptions 71
8.3 A Total Market Valuation 73
8.4 An Aggregate Flotation Value 74
8.5 The Number and Denomination of Shares 74
8.6 A Valuation per Share 74
Summary and Conclusions 75
9 Managerial Motivation and Corporate Takeover 77
Introduction 77
9.1 Objective Motivational Factors 77
9.2 Subjective Motivational Factors 80
Summary and Conclusions 83
Selected References 83
10 Acquisition Pricing and Accounting Data 84
Introduction 84
10.1 Takeover Valuation: The Case for Net Assets 86
10.2 Valuing the Assets 86
10.3 How to Value Goodwill 88
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I joined MITAS because
Maersk.com/Mitas�e Graduate Programme for Engineers and Geoscientists
Month 16 I was a construction supervisor in the North Sea
advising and helping foremen solve problems I was a
he s
Real work International opportunities
�ree work placements al
Internationa or
�ree wo
I wanted real responsibili�
I joined MITAS because
Maersk.com/Mitas
�e Graduate Programme for Engineers and Geoscientists
Month 16 I was a construction supervisor in the North Sea
advising and helping foremen solve problems I was a
he s
Real work International opportunities
�ree work placements al
Internationa or
�ree wo
I wanted real responsibili�
I joined MITAS because
Maersk.com/Mitas
�e Graduate Programme for Engineers and Geoscientists
Month 16 I was a construction supervisor in the North Sea
advising and helping foremen solve problems I was a
he s
Real work International opportunities
�ree work placements al
Internationa or
�ree wo
I wanted real responsibili�
I joined MITAS because
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Summary and Conclusions 92
11 Acquisition Pricing-Profitability, Dividend Policy and Cash Flow 94
Introduction 94
11.1 Takeover Valuation: The Profitability Basis 94
11.2 Takeover Valuation: Dividend Policy 98
11.3 Takeover Valuation: The Cash Flow Basis 103
Summary and Conclusions 106
Selected References 107
12 Takeover Activity, Investor Behaviour and Stock Market Data 108
Introduction 108
12.1 The Current Takeover Scene 109
12.2 Investor Behaviour 110
12.3 The “Golden Rules” of Investment 112
12.4 Acquisition Strategy and Stock Market Data 114
Summary and Conclusions 121
Selected References 122
Appendix: Stock Market Ratios 123
