From Value to Growth Stocks: A Financial Ratio Analysis
(2007)Department of Business Administration
- Abstract
- The value investing philosophy, which can be traced at least to the teaching of Graham and Dodd in the 1930’s, entails identifying and investing in potentially under valued stocks with a potential for extraordinary returns. The focus of this thesis is to identify patterns and characteristics in financial accounting data preceding creation of shareholder value. The authors of this thesis utilize a multivariate discriminant analysis in order to identify indicators of value creation and subsequent extraordinary returns in value stocks. A discriminant function is derived which successfully identifies which value stocks will eventually become growth stocks. The thesis proves that it is possible to predict future extraordinary returns using... (More)
- The value investing philosophy, which can be traced at least to the teaching of Graham and Dodd in the 1930’s, entails identifying and investing in potentially under valued stocks with a potential for extraordinary returns. The focus of this thesis is to identify patterns and characteristics in financial accounting data preceding creation of shareholder value. The authors of this thesis utilize a multivariate discriminant analysis in order to identify indicators of value creation and subsequent extraordinary returns in value stocks. A discriminant function is derived which successfully identifies which value stocks will eventually become growth stocks. The thesis proves that it is possible to predict future extraordinary returns using easily accessible financial accounting data. Furthermore, the authors conclude that firms are rationally priced at low market-to-book ratios due to a lack of profitable investment opportunities. Firms leaving the value segment to become growth stocks are shown to achieve this transition by improving a suboptimal capital structure. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/1338783
- author
- Magnusson, Johan and Dirks, Malte
- supervisor
- organization
- year
- 2007
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Financial ratios, Growth stocks, Multivariate discriminant analysis, Value creation, Value investing, Value stocks, Management of enterprises, Företagsledning, management
- language
- Swedish
- id
- 1338783
- date added to LUP
- 2007-06-04 00:00:00
- date last changed
- 2012-04-02 16:41:13
@misc{1338783,
abstract = {{The value investing philosophy, which can be traced at least to the teaching of Graham and Dodd in the 1930’s, entails identifying and investing in potentially under valued stocks with a potential for extraordinary returns. The focus of this thesis is to identify patterns and characteristics in financial accounting data preceding creation of shareholder value. The authors of this thesis utilize a multivariate discriminant analysis in order to identify indicators of value creation and subsequent extraordinary returns in value stocks. A discriminant function is derived which successfully identifies which value stocks will eventually become growth stocks. The thesis proves that it is possible to predict future extraordinary returns using easily accessible financial accounting data. Furthermore, the authors conclude that firms are rationally priced at low market-to-book ratios due to a lack of profitable investment opportunities. Firms leaving the value segment to become growth stocks are shown to achieve this transition by improving a suboptimal capital structure.}},
author = {{Magnusson, Johan and Dirks, Malte}},
language = {{swe}},
note = {{Student Paper}},
title = {{From Value to Growth Stocks: A Financial Ratio Analysis}},
year = {{2007}},
}