Proceedings

Price/Earnings ratio model is a very popular method how to determine the fair value
of shares. It is a product of earnings per share ratio and price/earnings ratio.
According to IFRSs it is required to present EPS ratio within the statement of
comprehensive income. However there shall be stated following limitation of this
model: (i) in certain markets it is not easy to find out P/E ratio value, and (ii) this
model is not applicable in case that the valuated company reaches loss.
Finally we have to mention Gordon’s dividend discount model. In this case the fair
value is calculated as a ratio between the estimated amount of dividends to required
rate of return less growth rate of dividends. As a major disadvantage of this model
shall be stated the fact it cannot be applicable for those share issuers reaching loss and
those who do not pay dividends.
The main objective of this research was to determine, whether SMEs use financial
instruments, whether the entities are able to calculate their fair value, and finally
whether companies use hedging instruments as a tools of risk management. A
questionnaire based survey was conducted in order to obtain the necessary
information. The questionnaires were distributed in printed and electronic form.
3. DEVELOPING THE ANALYSIS AND INTERPRETING RESULTS
Our analysis is based on responses being obtained from a total of 111 companies with
annual turnover exceeding CZK 5 billion. Respondents were asked to characterize
their business based on the main area of their activity. They could select one or more
of the following categories: production, trade, services, finance and insurance. None
of the respondents belonged to the insurance sector. The structure of our sample in
accordance to the area of activity respondents declared to belong to is presented in
Figure 1. We must mention the fact that some of the companies reported more than
one branch of activity.
Figure 1. Sample’s structure based on companies’ area of activity
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
45,9%
20,7%
~ 309 ~
33,3%
2,7%
Production (51) Trade (23) Services (37) Finance (3)
(Source: author’s projection)