FCFE t+n is the free cash flow to equity in the period t + n [often defined as cash flow from operations less capital expenditures]. k is the cost of capital[r]
(1)Copyright © 2009 by The McGraw-Hill Companies, Inc All rights reserved. McGraw-Hill/Irwin
Analysis
(2)1
CHAPTER
(3)(4)Operating Activities
Revenues and expenses from providing goods and services
Operating Activities
Revenues and expenses from providing goods and services
(5)(6)Major aspects of financial statement analysis
4 Market measures
5 Financial distress and bankruptcy analysis
Special analysis topics Profitability analysis
2 Credit analysis Cash flow analysis
Basic analysis
6 Financial forecast Equity valuation
(7)(8)Comparative analysis
• Why we need to compare? • What we need to compare?
– Period-to-period – Firm-to-firm
– Division-to-division
• Difference types:
– In dollars: ∆A = A1 – A0
– In percentages:
A1
A0 x 100 (%)
(9)Time
To compare a company’s financial position and performance between periods.
(10)10
Trend analysis is used for comparison of the same
item over a significantly long period to detect
general pattern of a relationship between associated factors and project the future direction of this
pattern
Trend analysis is used for comparison of the same item over a significantly long period to detect
general pattern of a relationship between associated factors and project the future direction of this
pattern
(11)(12)Technique for identifying relationship between items in the same financial statement by
expressing all amounts as the percentage of the total amount taken as 100 (a common-size financial statement)
(13)(14)(15)(16)In mil US$ 2000 2001 2002 2003 2004 … 2010 2011 2012
Account
receivables 17.301 28.155 30.759 1.956 1.239 689 695 635 Inventories 5.618 4.912 5.115 5.335 5.549 8.951 8.407 7.558
(17)(18)Ratio analysis
• To evaluate relationships among financial statement items
• Four groups:
(19)Equity Valuation
Purpose: Estimate intrinsic value of a company (or stock)
Basis: Present value theory (time value of money)
Purpose: Estimate intrinsic value of a company (or stock)
Basis: Present value theory (time value of money)
Valuation - an important goal of many types of business analysis
(20)(1 + r)
(1 + r)nn
P = F
P = Fnn 11
Present value theory
P = A x x -
P = A x x -
(1 + r)
(1 + r)nn
1 1 r r 1 1
P: Present value
Fn: Future value at period n
A: Annual cash flows (from period to period n)
(21)Residual Income Model
Expected Income = Required rate of equity x Book value of equity
Residual Income = Actual Income – Expected Income Fair value of Equity = Book value of Equity +
PV{Expected Residual Incomes}
Investors should pay more than book value if actual income is higher than expected and less than book value if actual income is
(22)Equity valuation –
Residual Income Model
BVt is the book value at the end of period t
Rit+n is the residual income in period t + n [defined as net income, NI, minus a charge on beginning
book value, BV, or RIt = NIt - (k x BVt-1)] k is the cost of capital
E refers to an expectation
BVt is the book value at the end of period t
Rit+n is the residual income in period t + n [defined as net income, NI, minus a charge on beginning
book value, BV, or RIt = NIt - (k x BVt-1)] k is the cost of capital
(23)23
Example
In VND mil 2013 2014 2015 2016 2017 2018
Net income 609 628 639 702 773 773
Dividends 357 433 370 407 448 448
Beginning book value of equity
(24)24
Example
2013 2014 2015 2016 2017 2018
1 Beginning book value of equity BVE Required Income (rE= 13%)
3 Projected Income Residual Income
5 Discounted factor (rE = 13%) PV {RI2013→2018}
(25)Dividend model
Vt is the value of an equity security at time t
Dt +n is the dividend in period t+n
k is the cost of capital
E refers to expected dividends
Vt is the value of an equity security at time t
Dt +n is the dividend in period t+n
k is the cost of capital
(26)Equity Valuation –
Free cash flow to equity model
FCFEt+n is the free cash flow to equity in the period t + n [often defined as cash flow from operations less capital expenditures]
k is the cost of capital
E refers to an expectation
FCFEt+n is the free cash flow to equity in the period t + n [often defined as cash flow from operations less capital expenditures]
k is the cost of capital