برنامج توعية الوسطاء
DESCRIPTION
برنامج توعية الوسطاء. د. منذر بركات العمري هيئة الاوراق المالية والسلع. Interest Rates and Money Supply أسعار الفائدة والكتلة النقدية. Interest is the rent of money - PowerPoint PPT PresentationTRANSCRIPT
1-1
برنامج توعية الوسطاء
د. منذر بركات العمري
هيئة االوراق المالية والسلع
1-2
Interest Rates and Money Supplyأسعار الفائدة والكتلة النقدية
Interest is the rent of money Equal to the real growth rate of GDP plus the
expected inflation rate plus a premium to compensate for the riskness of the company being analyzed.
Money supply is the amount of liquidity that is being allowed by the UAE central bank. The company being analyzed benefits if the amount of liquidity is near the healthy level.
Both interest rates and money supply have a great effect on the performance and value of the company and need to be taken into consideration in any financial analysis.
1-3
Function of Financial Markets and Institutions
وظيفة األسواق والمؤسسات المالية
Allows transfers of funds from person or business without investment opportunities (i.e., “Lender-Savers”) to one who has them (i.e., “Borrower-Spenders”)
يحتاجونها من الى يملكونها ممن االموال تحويل
Improves economic efficiency
االقتصادية الفاعلية زيادة
1-4
Segments of Financial Markets1. Direct Finance
• Borrowers borrow directly from lenders in financial markets by selling financial instruments which are claims on the borrower’s future income or assets
المباشر • التمويل
2. Indirect Finance• Borrowers borrow indirectly from lenders via
financial intermediaries (established to source both loanable funds and loan opportunities) by issuing financial instruments which are claims on the borrower’s future income or assets
المباشر • غير التمويل
1-5Flow of Funds Through the Financial System
Function of Financial Markets رسم توضيحي لفكرة انتقال االموال
1-6
Classifications of Financial Marketsتصنيف األسواق حسب اإلصدار
1. Primary Market األولية السوق New security issues sold to initial
buyers
2. Secondary Market الثانوية السوق Securities previously issued are
bought and sold
1-7
Classifications of Financial Marketsتصنيف األسواق حسب التنظيم
3. Exchanges ) البورصات ) المنظمة االسواق Trades conducted in central locations
(e.g., ADSM, DFM, ….)
4. Over-the-Counter Markets الغير االسواقمنظمة Dealers at different locations buy and
sell
1-8
Function of Financial Intermediariesدور الوساطة المالية
Financial Intermediaries الوسطاء الماليين
1. Engage in process of indirect finance
2. More important source of finance than securities markets
3. Needed because of transactions costs and asymmetric information
1-9
Transactions Costs التحويالت تكاليف
1. Financial intermediaries make profits by reducing transactions costs
2. Reduce transactions costs by developing expertise and taking advantage of economies of scale and scope.
Function of Financial Intermediaries
المالية الوساطة دور
1-10
• A financial intermediary’s low transaction costs mean that it can provide its customers with liquidity services, services that make it easier for customers to conduct transactions توفير
االنتاجي المشروع انهاء الى الحاجة دون السيولة1. Banks provide depositors with checking accounts
that enable them to pay their bills easily
2. Depositors can earn interest on checking and savings accounts and yet still convert them into goods and services whenever necessary without having to discontinue and liquidate investments
Function of Financial Intermediaries
المالية الوساطة دور
1-11
Another benefit made possible by the FI’s low transaction costs is that they can help reduce the exposure of investors to risk, through a process known as risk sharing
المخاطر ادارة FIs create and sell assets with lesser risk to one
party in order to buy assets with greater risk from another party (e.g. banks)
This process is referred to as asset transformation, because in a sense risky assets are turned into safer assets for investors
Function of Financial Intermediaries
المالية الوساطة دور
1-12
Adverse Selection االستثمار عن االمتناع
1. Before transaction occurs
2. Potential borrowers most likely to produce adverse outcome are ones most likely to seek loan and be selected – brokers and financial analysts can prevent that by studying the credit worthiness of the borrowers
Function of Financial Intermediaries
المالية الوساطة دور
1-13
Moral Hazard الغير بأموال المخاطرة1. After transaction occurs2. Hazard that borrower has incentives
to engage in undesirable (immoral) activities making it more likely that won't pay loan back
Function of Financial Intermediaries
المالية الوساطة دور
1-14
Financial intermediaries reduce adverse selection and moral hazard problems, enabling them to make profits. How they do this is covered in many of the topics to come.
المخاطر هذه من تقلل المالية المؤسسات
Function of Financial Intermediaries
المالية الوساطة دور
1-15
Regulation of Financial Markets Reasons for Regulation التشريع اسباب
المالي
1. Increase Information to Investors
2. Protect investors and their investments
3. Ensure the Soundness of Financial Intermediaries
4. Improve Monetary Control
1-16
Regulation Reason: Increase Investor Information
المعلومات توفر زيادة• Asymmetric information in financial markets
means that investors may be subject to adverse selection and moral hazard problems that may hinder the efficient operation of financial markets and may also keep investors away from financial markets
• The Securities and Commodities Authority (SCA) requires corporations issuing securities to disclose certain information about their sales, assets, and earnings to the public and restricts trading by the largest stockholders (known as insiders) in the corporation.
1-17
Regulation Reason: Increase Investor Information
المعلومات توفر زيادة
• Such government regulation can reduce adverse selection and moral hazard problems in financial markets and increase their efficiency by increasing the amount of information available to investors
1-18
Regulation Reason: Ensure Soundness of Financial
Intermediaries الوسطاء د ش� ر� Because providers of funds to financial
intermediaries may not be able to assess whether the institutions holding their funds are sound or not, if they have doubts about the overall health of financial intermediaries, they may want to pull their funds out of both sound and unsound institutions, with the possible outcome of a financial panic that produces large losses for the public and causes serious damage to the economy
1-19
Regulation Reason: Ensure Soundness of Financial
Intermediaries الوسطاء د ش� ر� To protect the public and the economy
from financial panics, six types of regulations are needed: Restrictions on Entry - soundness Disclosure – transparency Restrictions on Assets and Activities – no
dummies Deposit Insurance – peace of mind Limits on Competition – no price wars Restrictions on Interest Rates – no usury
1-20
Regulation: Restriction on Entry الدخول موانع
Restrictions on Entry Very tight regulations as to who is allowed to
set up a financial intermediary Individuals or groups that want to establish a
financial intermediary, such as a bank or an insurance company, must obtain a charter from the government
Only if they are upstanding citizens with impeccable credentials and a large amount of initial funds will they be given a charter.
1-21
Regulation: Disclosure االفصاح
Disclosure Requirements
There are stringent reporting requirements for financial intermediaries Their bookkeeping must follow certain strict
principles, Their books are subject to periodic inspection, They must make certain information available
to the public.
1-22
Regulation: Restriction on Assets and Activities تحديد
النشاطات There are restrictions on what financial
intermediaries are allowed to do and what assets they can hold
Before you put your funds into a bank or some other such institution, you would want to know that your funds are safe and that the bank or other financial intermediary will be able to meet its obligations to you
1-23
Regulation: Restriction on Assets and Activities تحديدالنشاطات
One way of doing this is to restrict the financial intermediary from engaging in certain risky activities
Another way is to restrict financial intermediaries from holding certain risky assets, or at least from holding a greater quantity of these risky assets than is prudent
1-24
Regulation: Deposit Insurance
التأمين
The government can insure people providing funds to a financial intermediary from any financial loss if the financial intermediary should fail
1-25
Regulation: Past Limits on Competition للتنافس حدود
Although the evidence that unbridled competition among financial intermediaries promotes failures that will harm the public is extremely weak, the government needs to impose many restrictive regulations
The purpose is to prevent financial intermediaries from competing to the point where the integrity of the financial system is compromised.
1-26
Regulation: Past Restrictions on Interest Rates ألسعار حدودالفائدة Competition must also be inhibited
by regulations that impose restrictions on interest rates that can be paid on deposits
These regulations need to be instituted because of the widespread belief that unrestricted interest-rate competition help encourage bank failures
1-27
Regulation Reason: Improve Monetary Control بالكتلة التحكم
النقدية Because banks play a very important role in
determining the supply of money (which in turn affects many aspects of the economy), much regulation of these financial intermediaries is intended to improve control over the money supply
One such regulation is reserve requirements, which make it obligatory for all depository institutions to keep a certain fraction of their deposits in accounts with the central bank (the PMA)
Reserve requirements help the PMA exercise more precise control over the money supply – well, we do not have a currency nor can we control the used ones
1-28
The cost of moneyالمال رأس تكلفة
The price, or cost, of debt capital is the interest rate.
The price, or cost, of equity capital is the required return. The required return investors expect is composed of compensation in the form of dividends and capital gains.
1-29
What four factors affect the cost of money?المال رأس تكلفة في تؤثر التي العوامل
Time preferences for consumption )sacrifice( Expected inflation )loss in purchasing power( Risk )worry(
1-30
“Nominal” vs. “Real” ratesوالحقيقي االسمي العائد
k = represents any nominal rate
k* = represents the “real” risk-free rate of interest, if there was no inflation. Typically ranges from 1% to 4% per year.
kRF = represents the rate of interest on Treasury securities.
1-31
Determinants of interest rates) العائد ) الفائدة سعر محددات
k = k* + IP + DRP + LP + MRP
k = required return on a debt security
k* = real risk-free rate of interest
IP = inflation premium
DRP = default risk premium
LP = liquidity premium
MRP = maturity risk premium
1-32
Premiums added to k* for different types of debtالمختلفة المخاطر عالوات مقارنة
IP MRP
DRP LP
S-T Treasury L-T Treasury
S-T Corporate
L-T Corporate
1-33
Yield curve and the term structure of interest ratesباالستحقاق الفائدة وعالقة العائد منحنى
Term structure – relationship between interest rates )or yields( and maturities.
The yield curve is a graph of the term structure.
1-34
Hypothetical yield curveافتراضي عائد منحنى
An upward sloping yield curve.
Upward slope due to an increase in expected inflation and increasing maturity risk premium.
Years to Maturity
Real risk-free rate
0
5
10
15
1 10 20
InterestRate (%)
Maturity risk premium
Inflation premium
1-35
The Yield Curveالعائد منحنى
Corporate yield curves are higher than that of Treasury securities, though not necessarily parallel to the Treasury curve.
The spread between corporate and Treasury yield curves widens as the corporate bond rating decreases.
1-36
The Yield Curveالعائد منحنى
0
5
10
15
0 1 5 10 15 20
Years toMaturity
Interest Rate (%)
5.2%5.9%
6.0%TreasuryYield Curve
BB-Rated
AAA-Rated
1-37
The Term Structure of Interest Ratesعالقة سعر الفائدة بالوقت
The Term Structure of Interest Ratesعالقة سعر الفائدة بالوقت
The Yield Curve Spot and forward rates Theories of the Term Structure
The Yield Curve Spot and forward rates Theories of the Term Structure
1-38
bonds with the same characteristics,but different maturities
focus on Treasury yields same default risk similar liquidity many choices of maturity
The Term Structure of Interest Ratesبالوقت الفائدة سعر عالقة
The Term Structure of Interest Ratesبالوقت الفائدة سعر عالقة
1-39
Treasury securitiesأوراق الخزينة المحددة ألسعار الفائدة وهيكلها الزمني
Tbills: 4, 13, 26, and 52 weeks zero coupon
Tnotes: 2, 5, and 10 years
Tbonds: 30 years Tnotes and Tbonds are coupon
1-40
sometimes short-term yields are highest,
most of the time long-term yields are highest
Relationship between yield & maturity is NOT constant
بتغير والوقت الفائدة سعر بين ما العالقة تتغيرالمتوقعة االقتصادية األوضاع
1-41
The Yield Curveمنحنى العائد
plot of maturity vs. yield slope of curve indicates
relationship between maturity and yield
1-42
Upward Sloping
yields rise w/ maturity (common)
maturity
yield
1-43
downward sloping (inverted)
yield falls w/ maturity (rare)
maturity
yield
1-44
flat
yields similar for all maturities
maturity
yield
1-45
humped
intermediate yields are highest
maturity
yield
1-46
Theories of the term structureمحددات العالقة يبن الوقت وأسعار
الفائدة
explain relationship between yield and maturity
what does the yield curve tell us?
1-47
The Pure Expectations Theory Assume:
bond buyers do not have any preference about maturityi.e.bonds of different maturities are perfect substitutes
LT = long-term ST = short-term
1-48
if assumption is true,then investors care only about expected return if expect better return from ST bonds,
only hold ST bonds if expect better return from LT bonds,
only hold LT bonds
The Pure Expectations Theory
1-49
but investors hold both ST and LT bonds
so, must EXPECT similar return:
LT yields = average of the expectedST yields
The Pure Expectations Theory
1-50
slope of yield curve tells us direction of expected future ST rates
The Pure Expectations Theory
1-51
why? if expect ST rates to RISE,
then average of ST rates will be >current ST rate so LT rates > ST rates so yield curve SLOPES UP
1-52
if expect ST rates to FALL,then average of ST rates will be <current ST rate so LT rates < ST rates so yield curve slopes DOWN
The Pure Expectations Theory
1-53
if expect ST rates to STAY THE SAME,then average of ST rates will be =current ST rate so LT rates = ST rates so yield curve is FLAT
The Pure Expectations Theory
1-54
Is this True? not quite. FACT: yield curve usually slopes up but expectations theory would
predict this only when ST rates are expected to rise 50% of the time
1-55
what went wrong?
back to assumption:bonds of different maturities are perfect substitutes
but this is not likely long term bonds have greater price
volatility short term bonds have reinvestment risk
assumption is too strict so implication is not quite correct
1-56
Liquidity Theory assume:
bonds of different maturities are imperfect substitutes,and investors PREFER ST bonds
1-57
so if true,investors hold ST bondsUNLESSLT bonds offer higher yield as incentive
higher yield = liquidity premium
Liquidity Theory
1-58
IF LT bond yields have a liquidity premium,then usually LT yields > ST yieldsor yield curve slopes up.
Liquidity Theory
1-59
Problem How do we interpret yield curve? slope due to 2 things:
(1) exp. about future ST rates(2) size of liquidity premium
do not know size of liq. prem.
1-60
if liquidity premium is small, then ST rates are expected to rise
maturity
yield yield curve
small liquidity premium
1-61
if liquidity premium is larger, then ST rates are expected to stay
the same
maturity
yield yield curve
large liquidity premium
1-62
Preferred Habitat Theory assume:
bonds of different maturities are imperfect substitutes,and investor preference for ST bonds OR LT bonds is not constant
1-63
liquidity premium could be positive or negative
yield curve very difficult to interpret do not know size or sign of liquidity
premium
1-64
Segmented Markets Theory assume:
bonds of different maturities are NOT substitutes at all
1-65
if assumption is true, separate markets for ST and LT bonds slope of yield curves tells us nothing
about future ST rates unrealistic to assume NO substitution
bet. ST and LT bonds unrealistic to assume NO substitution
Segmented Markets Theory
1-66
The Annual Reportالسنوي التقرير
Balance sheet – provides a snapshot of a firm’s financial position at one point in time.
Income statement – summarizes a firm’s revenues and expenses over a given period of time.
Statement of retained earnings – shows how much of the firm’s earnings were retained, rather than paid out as dividends.
Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.
1-67
Balance Sheet: Assetsاالصول - المالي المركز قائمة
CashA/RInventories
Total CAGross FALess: Dep.
Net FATotal Assets
20067,282
632,1601,287,3601,926,8021,202,950 263,160 939,7902,866,592
200557,600
351,200 715,2001,124,000
491,000 146,200 344,8001,468,800
1-68
Balance sheet: Liabilities and Equityالملكية – وحقوق الخصوم المالي المركز قائمة
Accts payableNotes payableAccruals
Total CLLong-term debtCommon stockRetained earnings
Total EquityTotal L & E
2006524,160
636,808 489,6001,650,568
723,432460,000
32,592 492,5922,866,592
2005145,600200,000
136,000481,600323,432460,000
203,768 663,7681,468,800
1-69
Income statementالدخل قائمة
SalesCOGSOther expenses
EBITDADepr. & Amort.
EBITInterest Exp.EBTTaxesNet income
20066,034,000
5,528,000 519,988
(13,988) 116,960(130,948) 136,012(266,960) (106,784) (160,176)
20053,432,0002,864,000 358,672
209,328 18,900
190,428 43,828
146,600 58,640
87,960
1-70
Other dataأخرى معلومات
No. of sharesEPSDPSStock price
2006100,000-$1.602
$0.11$2.25
2005100,000
$0.88$0.22$8.50
1-71
Did the expansion create additional net operating after taxes )NOPAT(?
الضريبة بعد التشغيلي الدخل حسابات
NOPAT = EBIT )1 – Tax rate(
NOPAT06 = -$130,948)1 – 0.4(
= -$130,948)0.6(= -$78,569
NOPAT05 = $114,257
1-72
What effect did the expansion have on net operating working capital?
العمل المال رأس صافي حسابات
NOWC = Current - Non-interest
assets bearing CL
NOWC06 = )$7,282 + $632,160 + $1,287,360( – ) $524,160 + $489,600(
= $913,042
NOWC05 = $842,400
1-73
What effect did the expansion have on operating capital?
التشغيلي المال رأس حسابات
Operating capital = NOWC + Net Fixed Assets
Operating Capital06 = $913,042 + $939,790
= $1,852,832
Operating Capital05 = $1,187,200
1-74
What is your assessment of the expansion’s effect on operations?
التشغيل حسابات من مالحظات
Sales
NOPAT
NOWC
Operating capital
Net Income
2006 $6,034,000
-$78,569$913,042
$1,852,832-$160,176
2005 $3,432,00
0$114,257$842,400$1,187,20
0$87,960
1-75
What was the free cash flow )FCF( for 2002?الحر النقدي التدفق حساب
FCF06 = NOPAT – Net capital investment
= -$78,569 – )$1,852,832 - $1,187,200(
= -$744,201
Is negative free cash flow always a bad sign?
1-76
Economic Value Added )EVA(المضافة القيمة حساب
EVA = After-tax __ After-tax
Operating Income Capital costs
= Funds Available __Cost of
to Investors Capital Used
= NOPAT – After-tax Cost of Capital
1-77
EVA Conceptsالمضافة االقتصادية القيمة مفهوم
In order to generate positive EVA, a firm has to more than just cover operating costs. It must also provide a return to those who have provided the firm with capital.
EVA takes into account the total cost of capital, which includes the cost of equity.
1-78
What is the firm’s EVA? Assume the firm’s after-tax percentage cost of capital was 10% in 2000 and 13% in 2001.
المضافة االقتصادية القيمة حساب
EVA06 = NOPAT – )A-T cost of capital( )Capital(
= -$78,569 – )0.13()$1,852,832(
= -$78,569 - $240,868
= -$319,437
EVA05 = $114,257 – )0.10()$1,187,200(
= $114,257 - $118,720
= -$4,463
1-79
Did the expansion increase or decrease MVA?المضافة السوقية القيمة حساب
MVA = Market value __ Equity capital of equity supplied
It measures the value added to the company from its activities since its inception.Can not tell who did what.
1-80
Calculating Key Multipliersالمضاعفات مثال - حساب
P/E = Price / Earnings per share= $12.17 / $1.014 = 12.0x
P/CF = Price / Cash flow per share= $12.17 / [)$253.6 + $117.0( ÷ 250]= 8.21x
1-81
Calculating Key Multipliersمثال - المضاعفات حساب
M/B = Mkt price per share / Book value per share= $12.17 / )$1,952 / 250( = 1.56x
2007* 2006 2005 Ind.
P/E 12.0x -1.4x 9.7x 14.2x
P/CF 8.21x -5.2x 8.0x 11.0x
M/B 1.56x 0.5x 1.3x 2.4x
1-82
Analyzing the multipliersالمضاعفات تحليل
P/E: How much investors are willing to pay for $1 of earnings.
P/CF: How much investors are willing to pay for $1 of cash flow.
M/B: How much investors are willing to pay for $1 of book value equity.
For each ratio, the higher the number, the better. P/E and M/B are high if ROE is high and risk is
low.
1-83
Trend analysisالنمطية تحليل
Analyzes a firm’s financial ratios over time
Can be used to estimate the likelihood of improvement or deterioration in financial condition.
1-84
Potential uses of freed up cashالحر النقدي التدفق استخدامات
Repurchase stock Expand business Reduce debt All these actions would likely improve the
stock price.