Equity #29: Industry and Comp Analysis

Question 1

What is “growth relative to GDP growth”

Answer 1

growth relative to GDP growth is relationship btwn GDP and company sales estimated.
comp sales = based on future GDP growth

Question 2

What is “mkt growth and mkt share”

Answer 2

starts with estimate of industry sales (mkt growht) and then comp. sales are estimated as % (mkt share) of industry sales.
comp sales = based on forecasted mkt size * forecasted mkt share

Question 3

What are operating margins and sales levels like in a comp with economies of scale?

Answer 3

lower costs –> higher operating margins and there is pos correlation btwn sales volumes and margins

Question 4

DEFINE: Gross interest expense

Answer 4

gross debt + interest rates

Question 5

DEFINE: Net debt

Answer 5

gross debt - (cash + cash equiv. + short-term securities)

Question 6

DEFINE: Net interest expense

Answer 6

gross interest expense - (income on cash + short-term debt securities)

Question 7

FORMULA: forecasted income tax expense

Answer 7

expected effective tax rate * forecasted pretax income

Question 8

FORMULA: ROIC (return on invested capital)

Answer 8

(NOPLAT)/(invested capital) where NOPLAT is net-op earnings after tax and invested capital is op. assets- op liabilities

Question 9

Do firms have a competitive advantage in production/sale of their products when ROIC is higher or lower than peers?

Answer 9

when ROIC > peers, company is likely exploiting some competitive advantage

Question 10

What are porter’s 5 forcs?

Answer 10

1. Threat of subs
2. threat of new entrants
3. rivalry
4. bargaining power of buyers
5. bargaining power of customers