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3 Cards in this Set

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concentration ratio
Example: Concentration ratio
The beverage industry is composed of 5 firms with market shares as follows:

Co A has 30% market share
Co B has 30% market share
Co C has 20% market share
Co D has 15% market share
Co E has 5% market share.

Calculate the concentration ratio for the beverage industry.
Answer:
The three-firm concentration ratio fro the beverage industry is 80% (30% + 30% + 20%).
Herfindahl Index
The Herfindahl index is simply the sum of the squares of the market shares for each firm within the industry and is always less than one.

Co A has 30% market share
Co B has 30% market share
Co C has 20% market share
Co D has 15% market share
Co E has 5% market share.

Calculate the Herfindahl Index for the beverage industry.

Answer:
The Hefindahl Index is calculated as follows:

(0.30)2 + (0.30)2 + (0.20)2 + (0.15)2 + (0.05)2 = 0.245
How is PE and Dividend Payout Related
Price / Earnings ratio = (Dividend Payout Ratio) / (k − g),