How to use the idea of capitalization of business earnings to value securities
According to Matta et al (2016), capitalization of earnings is the process by which an organization determines its value by calculating the Net Present Value (NPV) of the expected future cash flows or profits. The capitalization of earnings of an organization can be arrived by taking the future earnings of the organization then divide them with the capitalization rate. Security valuation is the process of determining the net worth of securities in a business organization. WE can use the idea of capitalization of earnings to value securities of an organization because capitalization is an income –valuation approach that determines the value of a business by mostly looking at its current cash flows. In the valuation of securities, consideration is done one the value of tangible assets and level of deb which are all income generated (Aylin, 2017). Therefore, to value securities of an organization can take the same approach.
Calculating of value and comparing it with the stock market price
There is a way to calculate the value that can be compared to the value in the stock market. The value of securities calculated in the organization especially in those companies which are quoted in the stock exchange market (Matta et al, 2017). By using the approach and idea of capitalization, an organization needs to get the total number of securities and then divide them with the valuation rate. The answer obtained from the same can be compared with the price of securities in the stock market. If the value of return is high, then an investor should make investments in the same securities.
Financial figures associated with shares of stock
There are several financial figures that are associated with the shares of stock especially in business organizations. They includes as per share figures and figures which had been previously discussed in this chapter three. Basically, these financial figures include the As per Share value which refers to that portion of the profit of a company that is allocated to each outstanding share (Yalcin, 2017). Other financial figures include the dividends from each investment made and the book per value. Nevertheless, examples of financial rations which are associated with the shares of stock includes the price/sales ratio, the current ratio, debt –to-equity ratio, the interest coverage ratio and the asset turnover ratio. The ability of stock to obtain a high return of such ratios makes them worth than others.