财务报表分析Chapter01.ppt

McGraw-Hill/Irwin, The McGraw-Hill Companies, Inc., 2007 All rights reserved.,Grading,Grading for the course will be based on three components: Class participation (20%), Valuation reports and presentations(40%) Final exam (40%). Feel free to discuss the reports with others, but you should submit your own write-ups.,The Aim of the Course,To develop and apply technologies for valuing firms and for planning to generate value within the firm Features of the approach: A disciplined approach to valuation fundamental analysis and financial statement analysis Stresses the development of technologies that can be used in practice Adopts activist point of view to investing: the market may be inefficient Integrates financial statement analysis with corporate finance Exploits accounting as a system for measuring value added Exposes good (and bad) accounting from a valuation perspective,What Will You Learn from the Course,How intrinsic values are calculated What determines a firms value How financial analysis is developed for strategy and planning The role of financial statements in determining firms values How to pull apart the financial statements to get at the relevant information How ratio analysis aids in valuation How growth is analyzed and valued The relevance of cash flow and accrual accounting information How to calculate what the P/E ratio should be How to calculate what the price-to-book ratio should be How to do business forecasting How to assess the quality of the accounting,Chapter 1,Individual Investor,List Company,Financial Intermediate (Analysts, Investment Bank, Rating Agencies, Auditor),Market Supervisor (SEC),A Framework for Capital Market Participators,Investor,Institutional Investor,Valuation Technology,Industry Information,Macroeconomic Information,The Constitution of Investment Analysis,Enterprise Information,Rating Agencies,Financial Analyst,Users of Firms Financial Information (Demand Side),Equity Investors Investment analysis Management performance evaluation Debt Investors Probability of default Determination of lending rates Covenant violations Management Strategic planning Investment in operations Evaluation of subordinates Employees Security and remuneration,Litigants Disputes over value in the firm Customers Security of supply Governments Policy making Regulation Taxation Government contracting Competitors,Investors and management are the primary users of financial statements,Investment Styles,Intuitive investing Rely on intuition and hunches: no analysis Passive investing Accept market price as value: no analysis Fundamental investing: challenge market prices Active investing Defensive investing,Costs of Each Approach,Danger in intuitive approach: Self deception; ignores ability to check intuition Danger in passive approach: Price is what you pay, value is what you get: The risk of paying too much Fundamental analysis Requires work ! Prudence requires analysis: a defense against paying the wrong price (or selling at the wrong price) The Defensive Investor Activism requires analysis: an opportunity to find mispriced investments The Enterprising Investor,Alphas and Betas,Beta technologies: Calculates risk measures: Betas Calculates the normal return for risk Ignores any arbitrage opportunities Example: Capital Asset Pricing Model (CAPM) Alpha technologies: Tries to gain abnormal returns by exploiting arbitrage opportunities from mispricing Passive investment needs a beta technology (except for index investing) Active investing needs a beta and an alpha technology,Passive Strategies: Beta Technologies,Risk aversion makes investors price risky equity at a risk premium Required return = Risk-free return + Premium for risk What is a normal return for risk? A technology for pricing risk (asset pricing model) is needed Premium for risk = Risk premium on risk factors x sensitivity to risk factors Among such technologies: The Capital Asset Pricing Model (CAPM) One single risk factor: Excess market return on rF Normal return ( - 1) = rF + (rM - rF) Only “beta” risk generates a premium. Multifactor pricing models Identify risk factors and sensitivities: Normal return ( - 1) = rF + 1 (r1 - rF) + 2 ( r2 - rF) + . + k (rk - rF) (ri = Return to Risk Factor i, i = sensitivity to Risk Factor i),Summary of Annual Returns on Stocks, Bonds, Treasury Bills and Changes in the Consumer Price Index, 1926-1995,Returns to Passive Investments,Fundamental Risk and Price Risk,Fundamental risk is the risk that results from business operations Price risk is the risk of trading at the wrong price Paying too much Selling for too little,Questions that Fundamental Investors Ask,Dell Computer traded at 87.9 times earnings in 2000. Historically, P/E ratios have averaged about 14. Is Dells P/E ratio too high? Would one expect its price to drop?(p4) What growth in earnings is required to justify a P/E of 87.9? Ford Motor Co. traded at a P/E of 5.0 in 2000. Is this too low? Yahoo! had a market capitalization of 44 billion in 2005. What future sales and profits would support this valuation? Coca-Cola had a price-to-book ratio of 6.5 in 2005. Why is its market value so much more than its book value? Google went public in 2004 and received a very high valuation in its IPO. How would analysts translate its business plans and strategies into a valuation?,Investing in a Business,Business investment and the firm: value is surrendered by investors to the firm, the firm adds or losses value, and value is returned to investors. Financial statements inform about the investments. Investors trade in capital markets on the basis of information on financial statements,The capital market: Trading value,Operating Activities,Investing Activities,Financing Activities,Debtholders,Secondary Debtholders,Shareholders,Secondary Shareholders,Cash from loans,Interest and loan repayments,Cash from share issues,Dividends and cash from share repurchases,Cash from sale of debt,Cash from sale of shares,Business Activities,Financing Activities: Raising cash from investors and returning cash to investors Investing Activities: Investing cash raised from investors in operational assets Operating Activities: Utilizing investments to produce and sell products,The Firm and Claims on the Firm,Value of the firm = Value of Assets = Value of Debt +Value of Equity Valuation of debt is a relatively easy task,Households and Individuals,Firms,Business Assets,Business Debt,Business Equity,Business Debt (Bonds),Other Assets,Business Equity (Shares),Household Liabilities,Net Worth,The Business of Analysis: The Professional Analyst,The outside analyst understands the firms value in order to advise outside investors Equity analyst Credit analyst The inside analyst evaluates plans to invest within the firm to generate value The outside analyst values the firm. The inside analyst values strategies for the firm.,Value-Based Management,Test strategic ideas to see if they generate value 1. Develop strategic ideas and plans 2. Forecast payoffs from the strategy 3. Use forecasted payoffs to discover value creation Applications: Corporate strategy Mergers & acquisitions Buyouts & spinoffs Restructurings Capital budgeting Manage implemented strategies by examining decisions in terms of the value added Reward managers based on value added,Investing Within a Business: Inside Investors,Business Ideas (Strategy),The Analysis of Business,Understand the business Understand the business model (strategy) Master the details The financial statements are a lens on the business. Financial statement analysis focuses the lens.,Knowing the Business: Know the Firms Products,Types of products Consumer demand for the product Price elasticity of demand for the product Substitutes for the product. It is differentiated? On price? On quality? Brand name association of the product Patent protection for the product,Knowing the Business: Know the Technology,Production process Marketing process Distribution channels Supplier network Cost structure Economies of scale,Knowing the Business: Know the Firms Knowledge Base,Direction and pace of technological change and the firms grasp of it Research and development programs Tie-in to information networks Managerial talent Ability to innovate in product development Ability to innovate in production technology Economies from learning,Knowing the Business: Know the Industry Competition,Concentration in the industry, the number of firms and their sizes Barriers to entry in the industry and the likelihood of new entrants and substitute products The firms position in the industry. It is the first mover or a follower in the industry? Does it have a cost advantage? Competitiveness of suppliers. Do suppliers have market power? Do labor unions have power? Capacity in the industry? Is there excess capacity or under capacity? Relationships and alliances with other firms,Knowing the Business: Know the Political, Legal and Regulatory Environment,The firms political influence Legal constraints on the firm including the antitrust law, consumer law, labor law and environment law Regulatory constraints on the firm including product and price regulations Taxation of the business The firms ethical charter and the propensity for violating it Corporate governance mechanisms,Key Questions,Does the firm have competitive advantage? How durable is the firms competitive advantage? What forces are in play to promote competition? What protection does the firm have from competitors?,Valuation Technologies: Methods that do not Involve Forecasting,Method of Comparables (Chapter 3) Multiple Screening (Chapter 3) Asset-Based Valuation (Chapter 3),Valuation Technologies: Methods that Involve Forecasting,Dividend Discounting (Chapter 4) Discounted Cash Flow Analysis (Chapter 4) Pricing Book Values: Residual Earnings Analysis (Chapter 5) Pricing Earnings: Earnings Growth Analysis (Chapter 6),Tenets of Sound Fundamental Analysis,One does not buy a stock, one buys a business When buying a business, know the business Value depends on the business model, the strategy Good firms can be bad buys Price is what you pay, value is what you get Part of the risk in investing is the risk of paying too much for a stock Ignore information at your peril Dont mix what you know with speculation Anchor a valuation on what you know rather than speculation Beware of paying too much for growth When calculating value to challenge price, beware of using price in the calculation Stick to your beliefs and be patient; prices gravitate to fundamentals, but that can take some time,Classifying and Ordering Information,Dont Mix What You Know With Speculation Order information in terms of how concrete it is: Separate concrete information from speculative information Anchor a valuation on what you know rather than speculation Financial statements provide an anchor,Anchoring Valuation in the Financial Statements,Value = Anchor + Extra Value For example, Value = Book value + Extra value Value = Earnings + Extra Value The valuation task: How to calculate the Extra Value,The Continuing Case: Kimberly-Clark,A continuing case threads its way through the book. At the end of each chapter (up to Chapter 15), you will find an installment of the case that applies the material in the chapter to Kimberly-Clark. By the end of Chapter 15, you will have a comprehensive analysis and valuation for this firm as an example to apply to other firms. Work the case as you progress through the book, then go to the books web site for the solution and further discussion,Outline of the Book,Parts I The Foundations Valuation models Incorporating financial statements into valuation II Analyzing Information III Forecasting and Valuation IV Accounting Analysis V Cost of Capital and Risk,Sneak Preview,Dividend Capitalization:,Accounting:,CURRENT AND PAST FINANCIAL STATEMENTS (analysis of information, trends, comparisons, etc.),FORECASTING,FORECASTS OF CASH FLOWS,DISCOUNTED CASH FLOWS,VALUE OF THE FIRM/ DIVISION,DISCOUNTED RESIDUAL EARNINGS,FORECASTS OF EARNINGS (and Book Values),A Framework for Valuation Based on Financial Stateme