Valuation ratios

The market value of a firm is a reflection of what investors think of the company s past performance and future outlook. This perception is portrayed through valuation ratios. Company stock prices fluctuate based on investor sentiment thus stock prices are generally higher when investors are pleased with the company s past performance and future prospects. Valuation ratios generally include the number of company shares available and stock prices. 

To best understand the valuation ratios, it is important to also understand the concept of diluted shares. Companies that issue stock may have a certain amount of stock in reserve. When companies report diluted shares, they are including shares that stockholders already own plus stock options that stockholders could own if they exercised their stock options. Thus, earnings per share is diluted because of the extra shares included in the calculation. Reporting diluted shares provides the investment community a what if scenario to understand what would happen if the stock options were exercised. 

Supply chain and operations professionals have numerous opportunities to affect the valuation of organizations. Earlier chapters have discussed value. Supply chain and operations create value for customers by delivering quality products, providing excellent and timely service while keeping costs manageable. Managing each of these areas increases the financial value of a company. Remember that valuation ratios indicate market value of the company. This chapter will examine valuation more closely and explain why valuation is important, how investors and buyers value companies, and how supply chain and operations managers affect a company s valuation. 

There is a general relationship between metal price and terrestrial concentration. Metals present at relatively high concentrations, in the earth s cmst, such as iron and aluminum, are the least expensive rare metals such as gold and platinum are the most valuable. This situation has existed for gold and silver valuation for centuries. The amount of silver in the earth s cmst is approximately 20 times that of gold, and the historical price ratio for gold and silver varied between 10 and 16 for over 3000 years. Since 1970 that price ratio has been strongly affected by market forces and investor speculation. 

To allow for maximum consistent data over a long time frame, we used equity related metrics for this analysis. The basic approach is that the valuation level of the industry (its price-earnings ratio) can be linked to the fundamental value drivers as follows ... 

Perfect capital markets should see through the cycle and the reaction of valuations to purely cyclical fluctuations in the industry return on capital should be insignificant. To examine this, we again compared the actual valuation level to a fundamental predicted valuation level for commodity chemical companies. To pinpoint the effects of cyclicality, however, we used a slightly different approach. As we wanted to evaluate capital market expectations, we compared the actual valuation level with a fundamental valuation level based on perfect foresight , i.e., assuming that the capital market knew the actual development of the key value drivers for the next 8 years and evaluated this information in line with its implied fundamental value creation.4 Furthermore, we used a capital structure-adjusted market-to-book ratio instead of an earnings-based metric for the valuation level. 

It can be demonstrated that the capital market overreacts - both upwards and, apparently to a lesser extent, also downwards - to purely cyclical fluctuations in industry performance.S) Our chart shows that the indexed market-to-book ratio roughly follows the normalized ROIC over time, rather than staying close to the 100 percent valuation level which is perfectly in line with future value creation (Fig. 2.4). 

Since gas players have invested cautiously despite continuous growth, they have managed to increase their capital productivity and prevent value leakage during the last five years. Compared with specialty chemicals companies, industrial gases players have shown a relatively stable market-to-book ratio over the last ten years. Current valuation levels are driven by a relatively stable operating performance and substantial growth expectations. 

Simultaneous administration of a mixture of substrates of CYP enzymes in one study (i.e., a cocktail approach ) in human volunteers is another way to valuate a drug s inhibition or induction potential (35), provided that the study is designed properly and the following factors are present (1) the substrates are specific for individual CYP enzymes, (2) there are no interactions among these substrates, and (3) the study is conducted in a sufficient number of subjects. Negative results from a cocktail study can eliminate the need for further evaluation of particular CYP enzymes. However, positive results can indicate the need for further in vivo evaluation to provide quantitative exposure changes (such as AUC and Cmax), if the initial evaluation only assessed the changes in the urinary parent to metabolite ratios. 

A chest of opium in 1820 sold for 2,075 on arrival at the port of Canton. While this figure tended to drop marginally as the volume of traffic increased after 1830, any calculation of cash valuation of the opium trade into China establishes a figure that very nearly parallels "the present 100-200 billion (when appropriate calculations are made to account for differences in purchasing power of the dollar in ratio to total volume of world production) in annual "black" revenues. 

Stock market fluctuations cause major distortions in the relative valuations of companies. Not so. Even in highly turbulent markets, the relative performance of stocks remains remarkably stable. Eor example, both before and after the 1987 stock market crash, the ratio of the market values of pairs of companies from the same industry (such as General Electric and Siemens, DuPont and Bayer, and General Motors and Volkswagen) did not change by more than 10 percent, despite the steep fall in the total market valuation. 

Loan to value ratio- The ratio of the loan amount to the property valuation and expressed as a percentage. E.g. if a borrower is seeking a loan of 200,000 on a property worth 400,000 it has a 50% loan to value rate. If the loan were 300,000, the LTV would be 75%. The higher the loan to value, the greater the lender s perceived risk. Loans above normal lending LTV ratios may require additional security. 

Companies and management are evaluated on many outcomes and operations functions can directly impact a company s financial performance. Companies are evaluated on their ability to pay current bills, profitability, management of assets and debts, and the valuation of the company. Operations and supply chain managers have a significant impact on a company s cash flow, profitability, debt burden, utilization of assets, and its ability to remain in business. Operational decisions and actions will be reflected on a company s financial statements and subsequent performance ratios. Table 4.5 provides a summary of the performance ratios that were introduced in this chapter. 

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