Just trying to straighten some thing out here. When ratios/calc’ns “equity”, does one include retained earnings? Here are some examples. 1. Holding effects in currency translation- you include retained earnings in equity right? 2. Leverage ratios- use total shr-holders equity (inc’g retained earnings)? 3. WACC D/E use mkt value of equity? 4. RI we use BV of Equity (inc’g retained earnings??)? This seems strange to me because we should be taking a charge for required return to equity right… so shouldn’t mkt value be used to reflect true residual income, analagous to WACC in EVA calc’n being based on MKT values?? Anyone?
- Include RE 2. Include RE 3. Market Value of equity (usually in a question, it’s share price x # of shares o/s) 4. Include RE 90% sure…lets see what others say.
1 yes 2 yes 3 no - forget book values here you need the market price 4 yes so pretty much all the time.
cool, thanks guys. I’m so excited to kill this thing on saturday!!!
Can someone please tell me if the B0 below is = equity on the BS or share price x # of shares? B0 + (ROE-r)*B0 / (r-g)
thats beginning book value : total shareholders’ funds… (excluding minority interest i presume)