cooperate finance Essay

914 Words4 Pages
GSBS6130- Corporate Finance
1. Introduction

Even though the operating performance of Innovative Chemical Corporation (ICC) has been outstanding, there are some problems in respect of the share price appreciation. Firstly, P/E ratio will be used to evaluate the company’s stock and factors which affect company’s P/E ratio will be listed. Furthermore, discounted dividend valuation model will be demonstrated and fundamental factors which impact the share pricing will be analysed. Finally, the value of ICC at 30 June 2010 will be calculated using P/E ratio and DDM model. Meantime, the weakness of those two models will be illustrated, and alternative methodology will be applied to calculate the intrinsic valuation of ICC and then compare
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CAPM).According to this table, we find that the net income increase from 24.442 to 70.221 in 2005 and 2010, the share price increase from 5.81 to 58.80 in 2005 and 2010 as well. According to the calculation of P/E ratios for ICC in these years are higher than the average annual P/E ratio, which means that the company overpricing his share price. Obviously, the dividend payout ratio at the same time appear in city is filled with the molecular formula with the denominator. At the molecular, dividends payout ratio, the bigger the current dividend level higher, the greater the P/E ratio; But in the denominator, dividends payout ratio, the bigger the dividend growth rate is lower, the smaller the P/E ratio. So, with P/E and the relationship between the dividends payout ratio is uncertain.

4. Intrinsic value of ICC
4a calculation
The intrinsic value for ICC at 30 June 2010 using P/E ratio is $50.93492181, which is lower than the share price at the same time. Again this shows the company overpricing the share price.

According to the calculations from the table, we can find out the intrinsic value for ICC at 30 June in 2010 is $ 6.2.
4bweakness of P/E ratio and DDM method
P/E ratio weakness
P/E ratio is a very rough index, considering the comparability, the same index of different stages of the P/E ratio is meaningful comparison, and to different market is transverse comparison should be especially careful.
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