Introduction to Equity Instrument Analysis

  • Moorad Choudhry
  • Didier Joannas
  • Richard Pereira
  • Rod Pienaar
Part of the Finance and Capital Markets Series book series (FCMS)

Abstract

Equity instruments call for a different approach in their analysis compared with debt securities. Compared with conventional bonds, shares do not pay a fixed cash flow during their life and do not have a fixed maturity date. Instead, the future cash flows of shares cannot be determined with certainty and must be assumed, and as they are in effect perpetual securities they have no redemption value. In addition they represent a higher form of risk for their holders. The analysis and valuation of shares therefore call for different techniques from that of bonds. In addition the interests of shareholders and bondholders sometimes often sit on opposite ends of the risk spectrum. While a firm’s bondholders are to some extent primarily concerned with financial probity and the maintenance (or upgrade) of its credit rating, shareholders gain, at least in the short term, from high-risk and high-return strategies where favourable perceptions lead to a short-term rise in the share price.

Keywords

Income Expense 

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Copyright information

© Moorad Choudhry, Didier Joannas, Richard Pereira and Rod Pienaar 2005

Authors and Affiliations

  • Moorad Choudhry
    • 1
  • Didier Joannas
    • 2
  • Richard Pereira
    • 3
  • Rod Pienaar
    • 4
  1. 1.KBC Financial ProductsUK
  2. 2.Hong KongChina
  3. 3.Nomura plcUK
  4. 4.UBS AGUK

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