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What is Tender offer?

 Tender Offer: It is a offer given by third party Or company to a target company's shareholders to sell their shares to third party or company with premium price of shares in a specified period of time with certain condition.  The condition must be fulfilled to complete the tender offer. For example 70℅ shareholders are ready to sell their shares to accept this offer,But if less than 70% shareholders are willing to take this offer. In that case this offer is not valid.  The tender offer is a step taken to merge or take over the another company. In this offer company pay cash to targeted company's shareholders or offer company's shares. If Company's offer it's shares to targeted company that is called exchange offer.  Tender offer is a direct offer given to target company's shareholders without using any medium like any exchange organization.  For example: XYZ Company issues a tender offer to PQR Company's shareholders to sell company's shares at Rs. 15 t...
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What is Free Cash Flow ?

What is Free Cash Flow? Free cash flow is a cash flow available in a company after paying operating expenses, debt and other obligations. It does not include the non cash expenses like depreciation.   Formula: FCF =Net income + Depreciation + Interest expense*(1-tax rate)-Increase in net working capital-Capital expenditure . OR FCF =EBIT*(1-tax rate) + Depreciation-Increase in net working capital/+Decrease in net working capital-Capital expenditure   Where, FCF=Free Cash Flow, EBIT = Earnings before Interest and Tax Capital expenditure = Cost of Asset   Example: The LX Company wants to purchase a machine worth Rs. 90,000. The life of asset is 5 years and the salvage value is Rs. 2800. The increase in net working capital is Rs. 45,820.The earnings before interest and tax is Rs. 4, 50,000. The company tax rate is 35%. What is the free cash flow of a LX Company?   Solution: Depreciation on machine: = (Cost of machine-Salvage value)/Usef...
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What is Geometric Average return and Arithmetic return? How to calculate it?

 Geometric average return: It is an average rate of return that includes the compounding effects in multiple periods. Formula: GAR = (((1+R 1 )* (1+R 2 )*(1+R 3 )*(1+R 4 )....(1+R n ))^1/n) -1 Arithmetic return: It is an average of set of data of different periods. It is calculated by adding the return of some period and then dividing the number with the number of data. Formula: AR = (R 1 +R 2 +R 3 +R 4 ....R n )/n AR =Arithmetic return R 1 +R 2 +R 3 +R 4 ....R n = Rate of return N = Number of observations Example: Find out the Average return of 4 years rate of return in a given data: Year Rate of return 1 3.5% 2 -2.9% 3 6% 4 8.5%   Solution: The average return of 4 years rate of return: AR = (R 1 +R 2 +R 3 +R 4 )/n = (3.5+ (-2.9)+6+8.5)/4 = 3.775% AR = Arithmetic return N =Number of periods Example: There are two stock are given St...
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What is Altman's Z-score? How to calculate it?

 Altman’s Z score: It was published by Edward Altman in 1968.It helps investors to analyse the financial strength of a company and measure the bankruptcy of a company.  There are three zones in Altman’s z-score: ·          Safe zone ·          Grey zone ·          Danger zone Safe Zone: If z-score is more than 2.99 that company is comes under safe zone. Grey Zone: If z-score is between 1.81 and 2.99 then that company comes under grey zone. Danger Zone: If z-score is less than 1.81 then that company is in danger zone. Formula: 1.2*(working capital/Total Assets) +1.4*(Retained Earnings /Total Assets) +3.3*(Earnings before interest and tax/Total Assets) +1.6*(The equity market value/Total Assets) +0.999*(Total Sales/Total Assets) With the help of this formula investors can predict the bankruptcy of a company within 2 years. It acts as a tool fo...
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