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Share Value - What's It Worth? Last week I covered a few essential short-term trading tools and this week I'm going to take you through a longer-term value investing tool - looking at valuations. Valuing a share with discounted cash flow Have you ever wondered how a stock market analyst values a share? How can they confidently say what a share will be worth? And why can another analyst look at precisely the same stock and come up with a completely different figure? We saw a classic example of this discrepancy this week with Computershare. After announcing an improved first-half earnings outlook, the share price took off. Analysts quickly upgraded their targets for the stock, with Credit Suisse setting a target price of $14.29 and Deutsche Bank upgrading their target to $12.00. So how did two analysts come up with completely different target prices? The answer lies in something called discounted cash flow, or DCF in short. Used well, it can be an extremely valuable long-term investment tool. And by understanding how it works, you'll be in a better position to make sense of those analyst valuations and decide exactly how much to rely on them. Past and future earnings The basic idea behind a DCF valuation is simple. When you buy a share, you are simply buying a chunk of the company's future earnings. While past earnings are an interesting signpost to the future, they have no bearing on your return. All you really care about is what happens next. So a DCF valuation tries to calculate all of a company's future earnings, then convert them into today's dollars. Why the conversion? Because a dollar today is worth more than a dollar next year, or the year after that. Let's look at that idea a little more closely. Time and money If I gave you $10,000 today, what would you do with it? I'm sure you can think of lots of interesting answers, but one (very boring!) option would be to put it in a term deposit, earning a fairly safe 6%. If you did that, you'd have $10,600 in a year's time. Leave it in for another year at the same rate, and you'd have $11,236. So what would you do if I asked you to wait two years for the money instead of giving it to you today? How much more would I need to give you to make waiting worth your while? Looking at those figures, you might say "at least $11,236". So, if we take 6% as our theoretical base rate of return, we can say that $11,236 in two years time is worth the same as $10,000 today. That's where the 'discounted' part of discounted cash flow comes in. When we look at a company's future earnings, we need to discount them back to today's dollars. That also means we have to choose a base rate of return, or discount rate - 6% in this case. Choosing a discount rate The lower the discount rate, the higher the valuation. To see why, just imagine your term deposit rate was slashed to 3%. In that case, you'd need to invest more than $10,000 to wind up with $11,236 - $591 more. So now $11,236 in two years is suddenly worth $10,591 in today's dollars. To put it another way, the less you discount future earnings, the more they are worth today. That brings us to our first problem: what discount rate should we use? Traditionally, many analysts used what's called the risk free rate, which in the US is considered to be the rate on US treasury bills. In Australia, the Reserve Bank's cash rate is a reasonable proxy. Nowadays, many see that as too low a benchmark, given the fairly reliable returns to be earned elsewhere. But as we've seen, if two analysts use different discount rates, they'll end up with different results. So you begin to see how valuations can start to diverge. But that's only the beginning Crystal balls and calculators A bigger problem is that of predicting a company's future earnings, particularly when peering five years into the future. As an example, let's look at Computershare's earnings history, as captured in its earnings per share (EPS): June 2005 EPS (cents): 16.4 Change from previous period: 24% June 2006 EPS (cents): 30.4 Change from previous period: 85% June 2007 EPS (cents): 46.6 Change from previous period: 53% June 2008 EPS (cents): 53.4 Change from previous period: 15% June 2009 EPS (cents): 63.9 Change from previous period: 20% As you can see, Computershare's earnings per share have risen steadily, which is great. But they haven't risen at an even rate. That makes the future difficult to predict, even with this year's profit guidance to help us. Just for fun, let's see how different assumptions can give very different results, using the classic discounted cash flow method. Current EPS 63.9 Discount rate 7.5% Earnings growth (next three years) 5% pa Valuation $9.76 Current EPS 63.9 Discount rate 7.5% Earnings growth (next three years) 10% pa Valuation $11.35 Current EPS 63.9 Discount rate 5% Earnings growth (next three years) 5% pa Valuation $14.69 Current EPS 63.9 Discount rate 5% Earnings growth (next three years) 10% pa Valuation $16.79 The situation gets worse with cyclical stocks such as resources or energy companies. If you want to predict BHP's earnings in two years time, you need to have a view on future prices for oil, iron ore, copper, zinc and nickel, as well as the likely direction of the Australian dollar. Little wonder that analysts differ! You can also see why classic value investors like Warren Buffett prefer established consumer stocks with strong pricing power and relatively steady earnings growth. Their earnings are just so much easier to predict. Making sense of the pundits So that gives you a sense of the kind of calculations underlying analyst valuations. To set a price target, they may even go a step further - looking at how a stock and others in its sector have historically traded against their intrinsic value, then adjusting the price to match. For now, though, it's enough to say that any valuation is simply a guide, rather than an iron-clad verdict on the value of a share. If you're a value investor, your aim is to leave a wide margin of error, so that any dubious assumptions come out in the wash. If you're interested in the topic, you might even like to try doing your own valuations. While the process is involved (too involved to cover in more detail here), it isn't theoretically complex, and there are plenty of guides out there to help you. Benjamin Graham's classic The Intelligent Investor is a great place to start. And remember, you can find analyst research, including price targets and valuations, in the 'bellintell' section of the Bell Direct website. Happy trading!

10 Easy Steps to Succeed in Your Online Classes

Congratulations Youve made up our minds to pursue your upper schooling, and doing so online is how to pass if you have an interest in a versatile, studentcentered educating manner. Studying online permits you to pursue different pursuits and attend to different responsibilities whilst nonetheless operating your method towards some extent. However, it will now and again imply that its clean to get distracted. Here are 10 clean steps to verify luck on your online categories.

1. Connect together with your instructors once conceivable. Even in case you are doing smartly within the category, its extraordinarily vital to increase a rapport together with your trainer. When you do that early on, you temporarily understand what the priorities are within the route, what expectancies the professor has of you and youre going to be motivated to prevail, surer of whats forward and higher ready to do smartly with the impending subject material.

Valuable questions to invite your trainer come with the next

How versatile are you with time limits How versatile are you with grownup freshmen What applied sciences do you employ within the route How to be had are you through e mail and different sorts of verbal exchange How do you put up an internet neighborhood and what are the expectancies for participation in it In addition, since instructors are to be had to lend a hand all over the classes, its all the time just right to have had private touch with the trainer early on. This method, when you wish to have lend a hand, its more straightforward to achieve out and get the help you wish to have.

2. Confirm the technical necessities of the route. Online categories can also be very advisable for college kids with busy schedules, however provided that they are able to simply get right of entry to the fabrics. It is vital to obviously perceive what the technical necessities are. So, ahead of the route begins or as quickly thereafter as conceivable, youll want to test that your pc will paintings with the entire online equipment, and that you understand how to navigate them. This will be sure that you dont must spend time all the way through the route attempting to determine the generation.

three. Create a time table and stick with it. Quality online instructors create classes which might be clean to navigate and feature transparent expectancies. Having that roughly easytodealwith framework in position will make learning and succeeding that a lot more straightforward. However, although the framework and necessities of your category arent as transparent, youll create a time table and construction, which is able to very much fortify your probabilities of luck within the route. Using equipment equivalent to Google Calendar is a good way to start out. Knowing how your weeks and months glance and scheduling blocks of analysis time for each and every activity or module will will let you stick with a time table.

four. Ask questionsall the time. When you dont perceive, ask questions. When you do perceive, ask additional questions. Instructors recognize scholars who take part, and if theres a participation or dialogue part a part of the grade, then asking high quality questions is helping guarantee your grade on this space. Even if there isnt a participation part, its all the time helpful to invite inquiries to remember to perceive the fabric and are transparent on what is needed of you.

five. Be arrangedand keep arranged. Students whore taking conventional, campusbased classes most often have a constant time table to observe each and every week, through which study room instruction is adopted through assignments out of doors the category. However, for online classes, scholars will have to search out their very own techniques to stick on most sensible in their paintings. It is crucial that you just be arranged from the start of the semester with the intention to achieve success in an internet route. For instance mark task due dates on your calendar, discover a submitting machine for each online subject material and bodily subject material that is helping you stay monitor of the whole lot simply, and shed light on find out about schedules that duvet sections of the route one by one so youve got an arranged tactic to protecting the semesters subject material as you pass alongside.

6. Have a blank, quiet, and constant workspace. One factor online and inclass classes have in not unusual is that scholars all the time want a spot to review or whole assignments this is blank, quiet, and constant. You can select the place that is for youwhether or not its at a espresso store, a college library, a devoted place of business, or at house. Wherever you select to review and whole assignments, you must make it a constant location that doesnt have out of doors distractions. It is basically key that where is quiet and lets you focal point in your paintings with out distractions.
7. Do no longer procrastinate. Successful distance freshmen hardly procrastinate. They dont do away with assignments or wait till the final second to write down their papers. Successful online scholars experience freedoms that come with operating at their very own tempo and the facility to finish their paintings in as a lot time because it takes them. On the opposite hand, they know that finishing their assignments is best performed early and on time cramming merely doesnt paintings, and it doesnt will let you retain knowledge longterm. Get began early on getting a success.

eight. Work in your studying comprehension. Successful distance freshmen generally tend to have just right studying comprehension abilities. Most conventional, campusbased scholars concentrate to lectures and take notes, and a few online classes additionally require this. However, the vast majority of distance freshmen are anticipated to grasp subject material thru a large amount of studying. Although far finding out classes be offering video recordings and audio clips, maximum systems require scholars to hide and grasp a considerable amount of written knowledge. If it is a problem for you, it could be very useful to first sign up in a studying comprehension route there are lots of assets online that will help you do that. This ability by myself could make a huge distinction on your luck.

nine. Establish and admire routines that be just right for you. If, for instance, youre employed best within the morning or in brief bursts, then set find out about routines that can help you find out about within the prelunch hours when your mind is contemporary. If, then again, you do best through learning at evening or at the weekends when youll devote nightowl hours or longer blocks in your learning, then make it some degree to take action. Consider how and whilst you paintings best, and enforce a find out about plan that respects the routines that be just right for you.

10. Connect together with your friends. Establishing sturdy connections with friends and professors is a very powerful facet of tutorial luck, in addition to skilled development. One of essentially the most rewarding reports in schooling is finding out thru collaboration. Forming significant relationships together with your friends and professors can can help you be told extra, keep motivated, and feature an outlet to specific your personal working out of subject material. So, keep attached thru message forums, chat rooms, e mail, and different digital assets. And take note lots of the other people you meet in faculty shall be conceivable process assets down the road so determine connections and keep in contact

Florida National University gives a wealth of tutorial and professional online classes. Check out the entire choicesyour long run is ready

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