英国名校布里斯托大学财务分析和证券估值课程4
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Sustainable growth rate = ROE x (1 – Dividend payout) Dividend payout = Cash dividend paid / Net profit • Sustainable growth rate is the rate at which a firm can grow while keeping its profitability and financial policies unchanged. • A firm can grow at a rate different than its sustainable growth rate if its profitability, payout policy or financial leverage changes. • Sustainable growth rate is the benchmark against which a firm’s growth plans can be evaluated. • Note: Cash dividend (includes share repurchase) ≠ Net payout to shareholders (FCFE, D) as defined in the reformulated SoFP
Ratio analysis
• No standardised definition of ratios. Every textbook and database has its own. • Company’s operations and industry make some ratios more useful than others (in particular in relation to working capital management ratios). Choice of relevant ratio is an important skill of an analyst. • Compare against competitors, industry norm, changes across time.
• Foundation for future forecast.
• Always be aware of limitations !
Techniques
• Common-size analysis • Industry-specific ratios • Ratios – Non-financial – Financial • Cash flow analysis • Segmental analysis • Comparisons – to other companies (cross-sectional analysis) – over time (trend or time-series analysis) – All techniques use relative numbers to eliminate the effect of size
Common-size analysis
• SoFP – What? Highlights the composition and changes in the composition of SoFP – Why? Explain linking to the underlying business/economic factors. • Income statement – What? Highlights the sources of changes in profit margins – Why? Explain linking to the underlying business/economic factors. – Tool for assessing operating management and profit margins.
Return on equity (ROE)
ROE = Comprehensive income (or Net income)
Average shareholders’ equity
• Key performance measure. Shows how well managers are employing the funds invested by the firm’s shareholders to generate returns. • On average, between 10% and 12% • In the long run, should be close to the cost of equity capital (if there are no permanent accounting distortions). • Cost of equity capital is natural benchmark for ROE evaluation. • ROE higher than cost of equity capital is a result of abnormal firm’s performance (industry profitability or strategic advantage) or accounting distortions. • Also, benchmark against industry average or average industry cost of capital.
– Company’s performance expressed in terms of accounting numbers as a key description of value added from past business activities
• Answers the questions • what happened? • why happened? – link to key success factors and execution of business strategy
PPE + Inventories+ Trade receivablesTrade payables
Borrowings and interest
Debtholders
Cash and borrowings
Suppliers
Expenses
Cash investments
Net share issuance and dividends
Industry-specific ratios
• Industry metrics that is key in driving OI • Source: Penman (2010), p. 533
Industry Airlines Key Economic Factors Key OI Drivers Sales and ATO Sales and margins Sales Sales and ATO Sales and ATO Sales and margins Sales, advertising Sales and ATO Margins Sales Sales and ATO
Shareholders
Operating and investing activities
Financing activities
Business activities and performance
Growth and profitability Financial market policies
Week 15 Financial Analysis
Process of fundamental analysis
Business analysis
Understanding the Past
Accounting analysis
Financial analysis
Forecasting
Valuation
Load factors, available seat km and fares Automobiles Model design and production efficiency Beverages Brand management and product innovation Cellular Phones Population covered (POP) and churn rates Commercial Real Estate Square footage and occupancy rates Computers Technology path and competition Fashion Clothing Brand management Internet Commerce Hits per hour Non-fashion clothing Production efficiency Pharmaceuticals Research and development Retail Retail space and sales per square foot
Net operating profit margin
Operating asset turnover
Spread
Expense ratios
Working capital and fixed assets turnovers
Net interest rate
Leverage ratios
Sustainable growth rate
Product market strategies Operating activities Investing activities
Capital structure
Dividend policy
Managing revenue and expenses
Managing working capital and fixed assets
Representation of business activities in financial statements
Product and Input Markets The Firm Capital Markets
Βιβλιοθήκη Baidu
Cash from operations
Customers
Revenues
Net asset used in operating activities
Managing liabilities and equity
Managing payout
Ratio pyramid
SUSTAINABLE GROWTH RATE Dividend payout ROE Operating ROA Financial leverage effect Financial leverage
Common-size analysis
• Financial data from separate financial statements expressed in relation to a single financial statement item: • Vertical – SoFP: item as a % of total assets – Income Statement: item as % of revenue • Horizontal – % of change of a single-item relative to the same item in the base year
Ratio analysis
• Relationship between various line items in SoFP and Income Statement • Key tool in evaluation of the company’s past profitability and financial position. – What? Profitability and financial position and changes in profitability and financial position – Why? Explain ratios linking them to the underlying business strategy, operations and economic factors.
Trading on the valuation
Purpose of financial analysis
• Assessment of company’s performance and trends in performance in the context of its stated goals and strategy.
Ratio analysis
• No standardised definition of ratios. Every textbook and database has its own. • Company’s operations and industry make some ratios more useful than others (in particular in relation to working capital management ratios). Choice of relevant ratio is an important skill of an analyst. • Compare against competitors, industry norm, changes across time.
• Foundation for future forecast.
• Always be aware of limitations !
Techniques
• Common-size analysis • Industry-specific ratios • Ratios – Non-financial – Financial • Cash flow analysis • Segmental analysis • Comparisons – to other companies (cross-sectional analysis) – over time (trend or time-series analysis) – All techniques use relative numbers to eliminate the effect of size
Common-size analysis
• SoFP – What? Highlights the composition and changes in the composition of SoFP – Why? Explain linking to the underlying business/economic factors. • Income statement – What? Highlights the sources of changes in profit margins – Why? Explain linking to the underlying business/economic factors. – Tool for assessing operating management and profit margins.
Return on equity (ROE)
ROE = Comprehensive income (or Net income)
Average shareholders’ equity
• Key performance measure. Shows how well managers are employing the funds invested by the firm’s shareholders to generate returns. • On average, between 10% and 12% • In the long run, should be close to the cost of equity capital (if there are no permanent accounting distortions). • Cost of equity capital is natural benchmark for ROE evaluation. • ROE higher than cost of equity capital is a result of abnormal firm’s performance (industry profitability or strategic advantage) or accounting distortions. • Also, benchmark against industry average or average industry cost of capital.
– Company’s performance expressed in terms of accounting numbers as a key description of value added from past business activities
• Answers the questions • what happened? • why happened? – link to key success factors and execution of business strategy
PPE + Inventories+ Trade receivablesTrade payables
Borrowings and interest
Debtholders
Cash and borrowings
Suppliers
Expenses
Cash investments
Net share issuance and dividends
Industry-specific ratios
• Industry metrics that is key in driving OI • Source: Penman (2010), p. 533
Industry Airlines Key Economic Factors Key OI Drivers Sales and ATO Sales and margins Sales Sales and ATO Sales and ATO Sales and margins Sales, advertising Sales and ATO Margins Sales Sales and ATO
Shareholders
Operating and investing activities
Financing activities
Business activities and performance
Growth and profitability Financial market policies
Week 15 Financial Analysis
Process of fundamental analysis
Business analysis
Understanding the Past
Accounting analysis
Financial analysis
Forecasting
Valuation
Load factors, available seat km and fares Automobiles Model design and production efficiency Beverages Brand management and product innovation Cellular Phones Population covered (POP) and churn rates Commercial Real Estate Square footage and occupancy rates Computers Technology path and competition Fashion Clothing Brand management Internet Commerce Hits per hour Non-fashion clothing Production efficiency Pharmaceuticals Research and development Retail Retail space and sales per square foot
Net operating profit margin
Operating asset turnover
Spread
Expense ratios
Working capital and fixed assets turnovers
Net interest rate
Leverage ratios
Sustainable growth rate
Product market strategies Operating activities Investing activities
Capital structure
Dividend policy
Managing revenue and expenses
Managing working capital and fixed assets
Representation of business activities in financial statements
Product and Input Markets The Firm Capital Markets
Βιβλιοθήκη Baidu
Cash from operations
Customers
Revenues
Net asset used in operating activities
Managing liabilities and equity
Managing payout
Ratio pyramid
SUSTAINABLE GROWTH RATE Dividend payout ROE Operating ROA Financial leverage effect Financial leverage
Common-size analysis
• Financial data from separate financial statements expressed in relation to a single financial statement item: • Vertical – SoFP: item as a % of total assets – Income Statement: item as % of revenue • Horizontal – % of change of a single-item relative to the same item in the base year
Ratio analysis
• Relationship between various line items in SoFP and Income Statement • Key tool in evaluation of the company’s past profitability and financial position. – What? Profitability and financial position and changes in profitability and financial position – Why? Explain ratios linking them to the underlying business strategy, operations and economic factors.
Trading on the valuation
Purpose of financial analysis
• Assessment of company’s performance and trends in performance in the context of its stated goals and strategy.