The Wall Street Skinny 24. Q&A: Treasury Stock Method, Relative Value Trading, The Yield Curve & More!
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Sep 2, 2023 Listeners get a humorous glimpse into a chaotic night involving a gas smell leading to an evacuation. The discussion delves into the Treasury Stock Method, revealing its impact on equity value and earnings dilution. Relative value trading is explored through the lens of the coffee industry, emphasizing fixed income strategies. Bond risks linked to leveraged buyouts by private equity firms are highlighted. Finally, the yield curve is examined for its crucial role in economic forecasting and investment decision-making.
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The Gas Leak Scare
- Jen describes a sleepless night due to a suspected gas leak, prompting a middle-of-the-night inspection.
- It turned out to be a false alarm, likely caused by the dog, leading to humorous family gaslighting.
Equity Value Calculation
- Kristen explains the treasury stock method, emphasizing that a company's equity value isn't simply share price times outstanding shares.
- Stock-based compensation, like options, dilutes existing shares and must be considered for accurate valuation.
10K Diluted Shares vs. Valuation
- The diluted shares reported in a 10K can't be directly used for valuation because they're calculated for diluted earnings per share and are time-weighted averages.
- Valuation requires up-to-date share counts and buyback prices based on the current share price.