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StockValuationChapter6Copyright©2011byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin整理课件CorporateFinance–BigIdeasSoFarCashFlowEmphasisRatioAnalysisofFinancialStatementsFinancialStatementForecastingExternalFinancingNeededInternalgrowthrate,SustainablegrowthrateTimeValueofMoney–PresentvaluevsFuturevaluePerpetuity,annuityandgrowingcashflowsBondvaluation;yield-to-maturityStockvaluation整理课件CorporateFinance–BigIdeasSoFarAccurate-canbecalculatedwithprecision:CashFlowCalculations(2Approaches)RatioAnalysisofFinancialStatementsFinancialStatementForecastingExternalFinancingNeededInternalgrowthrate,SustainablegrowthrateTimeValueofMoney–PresentvaluevsFuturevaluePerpetuity,annuityandgrowingcashflowsBondvaluation;yield-to-maturityTheory-ProvidesanEstimate:Stockvaluation整理课件KeyConceptsandSkillsStockpricesdependonfuturedividendsanddividendgrowthComputestockpricesusingthedividendgrowthmodelUnderstandhowgrowthopportunitiesaffectstockvaluesAppreciatethePEratioKnowhowstockmarketswork整理课件ParkerHannifinSharePrice(20yrs)

11.4%cagr(94-13)整理课件5整理课件ChapterOutline6.1ThePresentValueofCommonStocks6.2EstimatesofParametersintheDividendDiscountModel6.3 GrowthOpportunities6.4 Price-EarningsRatio6.5 SomeFeaturesofCommonandPreferred Stock6.6 TheStockMarkets整理课件6.1ThePVofCommonStocksThevalueofanyassetisthepresentvalueofitsexpectedfuturecashflows.Stockownershipproducescashflowsfrom:DividendsCapitalGainsValuationofDifferentTypesofStocksZeroGrowthConstantGrowthDifferentialGrowth整理课件Case1:ZeroGrowthAssumethatdividendswillremainatthesamelevelforeverSincefuturecashflowsareconstant,thevalueofazerogrowthstockis??Thepresentvalueofaperpetuity:整理课件ZeroGrowthExampleSupposeBigDealCompanywillpayanannualdividendof$2.00percommonsharethatwillneverincreaseordecrease.Themarketrateofreturnis8.5%.WhatisthemaximumamountyoushouldbewillingpayforacommonshareofBigDealCorporation?FormulaforZeroGrowthModel:P=Div/RSolution:P=$2.00/.085 P=$23.53整理课件Case2:ConstantGrowthSincefuturecashflowsgrowataconstantrateforever,thevalueofaconstantgrowthstockisthepresentvalueofagrowingperpetuity:Assumethatdividendswillgrowataconstantrate,g,forever,i.e.,...整理课件ConstantGrowthExampleSupposeBigD,Inc.,justpaidadividendof$.50.Itisexpectedtoincreaseitsdividendby2%peryear.Ifthemarketrequiresareturnof15%onassetsofthisrisklevel,howmuchshouldthestockbesellingfor?P0=.50(1+.02)/(.15-.02)=$3.92整理课件AWordAboutDividendsintheConstantGrowthModelItiscriticaltounderstandthatintheconstantgrowthmodelcalculationsarebasedonthenextperioddividendIfasituationonlyprovidesinformationonthelastdividend,calculatethenextdividendusingthegrowthrate整理课件Case3:Two-StageDividendGrowth整理课件Case3:Two-StageGrowthAssumethatdividendswillgrowatdifferentratesintheshortterm,thengrowataconstantratethereafter.TwostepstovalueaDifferentialGrowthStock:Estimatefuturedividendsintheshortterm.EstimatethefuturestockpricewhenthestockbecomesaConstantGrowthStock(case2).Computethetotalpresentvalueofbothofthese,usingadiscountrate.整理课件Case3:DifferentialGrowthAssumethatdividendswillgrowatrateg1forNyearsandgrowatrateg2thereafter.......整理课件Case3:DifferentialGrowthDividendswillgrowatrateg1forNyearsandgrowatrateg2thereafter…0 1 2 …N N+1 …整理课件Case3:Two-StageGrowthWecanvaluethisasthesumof:aT-yearannuitygrowingatrateg1plusthediscountedvalueofaperpetuitygrowingatrateg2thatstartsinyearT+1整理课件Case3:Two-StageGrowthConsolidatinggives:Or,wecan“cashflow”itout.整理课件ATwo-Stage(Differential)GrowthExampleAcommonstockjustpaidadividendof$2.Thedividendisexpectedtogrowat8%for3years,thenitwillgrowat4%inperpetuity.Whatisthestockworth?Thediscountrateis12%.整理课件WiththeFormula整理课件WithCashFlows…0 1 2 3 40 1 2 3 Theconstantgrowthphasebeginninginyear4canbevaluedasagrowingperpetuityattime3.整理课件EstimatingGrowth(g)Thevalueofafirmdependsuponitsgrowthrate,g,anditsdiscountrate,R.Wheredoesgcomefrom? g=Retentionratio×ReturnonretainedearningsExample:Supposeacompanyhasaretentionratioof70%andearnsanROEof12%.WhatistheGrowthRate,g?g=.70X.12g=.084=8.4%

整理课件WhereDoesRComeFrom?Thediscountratecanbebrokenintotwoparts.ThedividendyieldThegrowthrate(individends)Inpractice,thereisagreatdealofestimationerrorinvolvedinselectingR.Casescallingforspecialskepticism:StocksnotpayingdividendsStockswithgexpectedtoequalorexceedR整理课件UsingtheDGMtoFindRStartwiththeDGM:TotalReturn=DividendYield+DividendGrowthNotethatD1/P0isthedividendyieldandgisthedividendgrowth(andalsothecapitalgainsyield)RearrangeandsolveforR:整理课件Example:UsingDGMtoFindRImaginethataSolarCorp.’slastdividendwas$.65pershare.Solar’sdividendsaregrowingatarateof4%andthecurrentpricepershareis$11.25.WhatisthemarketRimplicitinSolar’sprice?R=(D1/P0)+gR=[(.65x1.04)/11.25]+.04R=.10or10%整理课件Example8.3p.239Keyobservation-IllustratesthatDGMimpliesthatdividendgrowthrate=sharepriceappreciationrate.26整理课件ParkerHannifinSharePrice(20yrs)

11.4%cagr(94-13)整理课件ParkerHannifinDividendHistory(20yrs)

10.1%cagr(95-13)整理课件Procter&GambleSharePrice(20yrs)

9.2%cagr(94-13)整理课件Procter&GambleDividendHistory(20yrs)

11.0%cagr(95-13)整理课件S&P500Price(15yrs)(1.6%cagr99-13)整理课件S&P500Dividends(15yrs)6.2%cagr(2000-13)整理课件TotalPayout Dividendsmaynotbeafirm’sonlycashpayoutRecentlymanyfirmshaverepurchasedshares,anotherformofpayoutUsingtheDividendGrowthModel,thepriceofasharewillbehigherifconsideringtotalpayoutratherthanjustdividends整理课件Example:TotalPayoutValuationAfirmforecastsincomeof$4.00pershareandwillpayout30%asdividends,30%assharerepurchaseandwillretaintherest.Itsgrowthrateis5%andrequiredreturnis10%.Whatisthepriceofashare?DividendGrowthModel:P0=(4.00X.30)/(.1-.05)=$24.00Noticethatthepriceisbasedondividend(30%ofearnings)growthonlyTotalPayoutModel:P0=(4.00X.60)/(.1-.05)=$48.00Noticethatthepriceisbasedontotalpayout(60%ofearnings=30%fordividendsand30%forsharerepurchase)growth整理课件6.3 GrowthOpportunitiesGrowthopportunitiesareopportunitiestoinvestinpositiveNPVprojects.Thevalueofafirmcanbeconceptualizedasthesumofthevalueofafirmthatpaysout100%ofitsearningsasdividendsplusthenetpresentvalueofthegrowthopportunities.整理课件PrerequisitestoGrowthTwoconditionsmustexistifacompanyistogrow:Itmustnotpayoutallofitsearningsasdividends;and,ItmustinvestinprojectswithapositiveNPV整理课件TheNo-PayoutFirmWhydon’tfirmswithnodividendshavestockpriceof$0?SuchfirmsbelievetheirearningsarebetterusedtopursuegrowthopportunitiesInvestorspayastockpricethatconformstotheirowncalculusoftheNPVGOoftheno-payoutfirmThedividendgrowthmodeldoesnotworkinvaluingthisfirmThedifferentialgrowthmodelcan,butevaluatingthetimingofchangesingrowthistricky整理课件6.4 Price-EarningsRatioManyanalystsfrequentlyrelateearningspersharetoprice.Theprice-earningsratioiscalculatedasthecurrentstockpricedividedbyannualEPS.TheWallStreetJournaluseslast4quarter’searnings整理课件FactorsImpactingtheP/ERatioGenerally,firmswithhighergrowthhavegreaterP/EthanthosewithnosuchprospectsAfirm’sRalsoimpactstheP/Eratio.TheP/EratioandRareinverselyrelated.AfirmwithconservativeaccountingprincipleswillgenerallyhaveahigherP/Eratiothanonewithaggressivepolicies.Why?整理课件S&P500withTrailingP/E40整理课件P&GwithtrailingP/E41整理课件P&G–RelativeStrength(vsS&P500)42整理课件P&G–TrailingP/E43整理课件P&G–RelativeP/E44整理课件6.5FeaturesofCommonStockVotingrights(Cumulativevs.Straight)ProxyvotingClassesofstockOtherrightsShareproportionallyindeclareddividendsShareproportionallyinremainingassetsduringliquidationPreemptiveright–firstshotatnewstockissuetomaintainproportionalownershipifdesired整理课件FeaturesofPreferredStockDividendsStateddividendmustbepaidbeforedividendscanbepaidtocommonstockholders.Dividendsarenotaliabilityofthefirm,andpreferreddividendscanbedeferredindefinitely.Mostpreferreddividendsarecumulative–anymissedpreferreddiv