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US and UK companies funded mainly by equity
Many european companies funded by debt
1) Pension funds
2) Insurance companies
3) Investment/mutual funds
Financial/investment decisions: buy/hold/sell shares based on forward looking information
Stewardship/accountability/control decisions: assessing how well management are doing based on backward looking and present information
Equity providers investment decisions
Valuation models
Dividend discount model:
-Dividends don't capture operations
-Non-dividend paying firms?
Accounting valuation models
Residual income valuation model:
-Gives a central role for financial statement data
-Model often outperforms DDM and DCF
-Financial reporting is useful with comparable and consistent information
-Used alongside other information
-Use financial information to assess stewardship however part of this is out of their control
-Valuation does not encompass stewardship
-To provide debt or not
-Covenants
-Set interest rates, maturity and collateral
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