3216AFE Study Guide - Final Guide: Longrun, Economic Indicator, Capital Structure

• School: Griffith University
• Department: Department of Accounting, Finance and Economics
• Course: 3216AFE
• Professor: All

Document Summary

Investing: the decision to invest is based on the difference between the current value of an asset and the perceived value of it. Investors expect to profit in one of three ways: High free cash flow which is reflected in a higher share price. An increase in the multiple that an investor is willing to pay for the underlying business. A narrowing of the difference between the share price and underlying value. Speculating: speculators base their craft on a prediction of the behaviour of others. Ultimately they will lose out in the greater- fool" game. Emh suggests that financial markets are efficient and trying to outperform averages is futile. The best outcome is to match the market. However, the reality is that markets have bouts of irrationality. Changes in share price can occur for many reasons and looking beyond price is necessary to affirm an investment decision.