Beruflich Dokumente
Kultur Dokumente
Stephen H. Penman
Prepared by Peter D. Easton and Gregory A. Sommers
Fisher College of Business The Ohio State University
With contributions by Stephen H. Penman Columbia University Luis Palencia University of Navarra, IESE Business School
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Litigants Customers
Disputes over value in the firm Security of supply Policy making Regulation Taxation Government contracting
Debt Investors
Probability of default Determination of lending rates Covenant violations
Governments
Management
Strategic planning Investment in operations Evaluation of subordinates
Competitors
Employees
Security and remuneration
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Investment Styles
Intuitive investing
Rely on intuition and hunches: no analysis
Chapter 1 Page 3
Passive investing
Accept market price as value: no analysis
Screening
Use a few pieces of information and no forecasting: minimal analysis
Fundamental investing
Discover the value in an investment through anticipations of payoffs 1. Analyze information 2. Forecast payoffs from information
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Danger in screening
Ignores information about the future
Fundamental analysis
Requires work !
Prudence requires analysis: a defense against paying the wrong price (or selling at the wrong price)
The Defensive Investor
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Coca-Cola had a price-to-book ratio of 17 (in 1999). Why is its market value so much more than its book value?
How are business plans and strategies translated into a valuation?
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Debtholders
Secondary Debtholders
Operating Activities
Investment Activities
Financing Activities
Cash from Share Issues Dividends and Cash from Share Repurchases
Shareholders
Secondary Shareholders
B alance Sheet
Income Statement
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Value-Based Management
Test strategic ideas to see if they generate value
1. Develop strategic ideas and plans 2. Forecast payoffs: pro forma analysis 3. Use pro forma analysis to discover value creation Applications:
Corporate strategy Mergers & acquisitions Buy outs & spinoffs Restructurings Capital budgeting
Chapter 1 Page 9
Manage implemented strategies by examining decisions in terms of the value added Reward managers based on value added
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Chapter 1 Page 10
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Step 1 - Knowing the Business The Products The Knowledge Base The Competition The Regulatory Constraints
Strategy
A valuation model guides the process Forecasting is at the heart of the process and a valuation model specifies what is to be forecasted (Step 3) and how a forecast is converted to a valuation (Step 4). What is to be forecasted (Step 3) dictates the information analysis (Step 2)
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Value = $5.00 / 0.05 = $100.00 (It works!) Value of Dell with forecasted earnings of $1.43 per share and 12% required return Value = $1.43 / 0.12 = $11.92 per share Is this the correct model? Should earnings or something else be forecasted?
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Value
So,
Forecasted earnings from market price = Price x Required Return = $66 x 0.12 = $7.92 per share Are we using a sound model? Or is the market price incorrect?
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Course Materials
Text Book:
Financial Statement Analysis and Security Valuation by Stephen Penman)
Website
http://www.mhhe.com/penman
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A text on US GAAP:
Keiso & Weygandt, Intermediate Accounting, Wiley, 9th Edition,1998.
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Layout of Book
Chapters 3 - 6: Developing and understanding the residual income valuation formula Chapters 7 - 10: Re-formatting the financial statement information to highlight the important attributes Chapter 11 - 12: Cutting to the core operations of the business: determining the sources of value added Chapters 13 - 16: Forecasting residual income and valuation Chapters 17 - 19: The reliability and the quality of accounting data Chapters 20 - 21: The analysis of risk and the valuation of debt
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CURRENT AND PAST FINANCIAL STATEMENTS (analysis of information, trends, comparisons, etc.)
The McGraw-Hill Companies, Inc., 2001 All rights
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Sneak Preview
Dividend Capitalization:
P0
t 1
t E
dt
Accounting:
Bt Bt 1 earnt dt
e a r nt E 1Bt 1
t E
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0
180.00%
Forecast Period
4 Years
160.00%
140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
Dividends
Cash Flows
Residual Earnings
Dividends
Cash Flows
Residual Earnings
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180.00%
Forecast Period
176.20%
4 Years
160.00%
140.00%
120.00%
100.00%
80.00%
63.30%
60.00%
40.00%
20.00%
10.30%
0.00%
Dividends
Cash Flows
Residual Earnings
Dividends
Cash Flows
Residual Earnings
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0
180.00%
Forecast Period
176.20%
4 Years
160.00%
140.00%
120.00%
100.00%
80.00%
63.30%
60.00%
40.00%
20.00%
10.30%
0.00%
Dividends
Cash Flows
Residual Earnings
Dividends
Cash Flows
Residual Earnings
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0
180.00%
Forecast Period
176.20%
4 Years
160.00%
140.00%
120.00%
100.00%
80.00%
63.30%
60.00%
40.00%
20.00%
10.30%
0.00%
Dividends
Cash Flows
Residual Earnings
Dividends
Cash Flows
Residual Earnings
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180.00%
Forecast Period
176.20%
4 Years
160.00%
140.00%
120.00%
100.00%
66.30%
80.00%
76.50%
60.00%
40.00%
16.70%
20.00%
10.30%
6.10%
0.00%
Dividends
Cash Flows
Residual Earnings
Dividends
Cash Flows
Residual Earnings
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CURRENT AND PAST FINANCIAL STATEMENTS (analysis of information, trends, comparisons, etc.)
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Residual Income
NET INCOME generated by the division/firm
Cost of Capital
Cost of Capital
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