Equity Flashcards
IV analyst - price =
IV act - price + (IV analyst - IV actual)
gordan growth model
v=d1/(r-g)
Ibbotsen-chen ERP
(1+inflation) * (1+r growth in EPS) * (1+ PEG) -1 + yld on index -rf
build-up method
does not use betas to adjust for the exposure of a factor
=bond yield + risk premium
adjusted beta
2/3 * regression beta + 1/3 * 1
strength & weakness of equity models
capm is simply but have low explanatory power
multifactor have more explanatory power but are more complex and costly
build-up are simple and can apply to closely held companies, but they typically use historical values as estimated that may or may not be relevant to the current situation
GGM ERP
1-yr forecast div yld on market index
+ consensus LT earnings growth
-LT gov’t bond yld
IRR intrinsic value =
D1/(R-G)
R=D1/P0 +G
real GDP growth rate
labor productivity growth + labor supply growth rate
labor supply growth rate
population growth rate + increase in labor force participation rate
beta est for thinly traded stocks
Bu = 1/ (1+D/E) * Be Be' = (1+ 'D/E) * Bu
5-factor BIRR Model
rf
+ (sensitivity to confidence risk) * confidence rp)
+ sensitivity to business cycle risk + bc rp)
+(sensitivity to market timing risk * mkt timing rp)
-(sensitivity to time horizon * time horizon rp)
-(sensitivity to inflation risk * inf rp)
build-up approach r=
rf + ERP + Size premium + specific company premium
no beta
WACC
D/A * rd * (1-t) + E/A *re
net debt
gross debt - cash and cash equivalent/st debt
net int. expense
gross interest exp
-int. income on cash and ST debt
inc. ta exp
cash tax due + change in deferred liabilities - change in deferred asset
PP&E
depr + CAPex
net pp&e = ppe-change in (CAPEX-DEPR)
ROIC
NOT AFFECTED BY LEVERAGE
=NOPLAT /INVESTED CAPITAL
=EBI/(Operating asset - operating liablities)
=EBIT(1-t)/invested capital
ROCE
useful to compare company/countries with diff. rates
= op. profit/ capital employeed
=EBIT/(D+E)
int. exp
net debt * tax
Reinvestment yr report debt for same reinvestment policy
total debt/(op cf - reinvestment)
reinvestment= capex - expenditure on intangible
RI
NI-re*bg bv of equity
用于negative fcff, no dividend, high earnings quality, transparent reporting
DDM (MINORITY)
Vo = D1/(1+r1)+p1(1+r1)
ggm growth rate
g=(r-d)/(1+dvd yld)
ggm for perferred stock
v=D/R
actual value of company share PVGO
V=E1/r +PVGO
P/E = (1/R)+(PVGO/E1)
Leading p/e1
JUSTIFIED FORWARD
po/E1
=D1/E/(r-g)
=(1-b)/(r-g)
trailing p/e
JUSTIFIED TRAILING
P0/E0
=d0(1+g)/e0/(r-g)
=(1+b)*(1+g)
/(r-g)
H model V
=D0(1+gL)/(r-gL)
+D0H(gS-gL)/(r-g)
sustainable growth rate
g=b* roe
g= ni-dividend/ni * ni/sales * sales/total asset * total asset/equity
financial leverage
ROE/ROA
ROE
NI/Equity
=ni/asset * asset/equity
=ni/revenue * revenue/assets * asset/equity
=net profit margin * asset turnover * leverage
when to use FCFF model
unstable dividend or divided policy is not reflecting controlling shareholder
FCINv
=end gross ppe - beg gross ppe - proceeds from sale of lt assets
=end net ppe-beg net ppe + depr
=capEx - proceeds from sale of LT assets
WCInc
change in current assets excl.cash & cash equivalents
-change in current liability excl. st debt
CFO
NI+NCC-WCINC
FCFF from NI
NI \+DEPR \+INT(1-t) -FCInv -WCInv
FCFF from EBIT
= EBIT(1-t) \+depr -FCInv -WCInv
FCFF from ebitda
EBITDA(1-t)
+depr(t)
-fcinv
-wcinv
FCFF from CFO
=CFO
+INT(1-t)
-fcinv
FCFE from FCFF
=FCFF
-int(1-t)
+net borrowing
FCFE from NI
NI \+depr -fcinv -wcinv \+net borrowing − principal repayments \+ new debt issues
FCFE from CFO
CFO
-FCInv
+net borrowing
FCFE with target debt ratio
NI - (1-DR)(FC-depr)-(1-DR)*WC
=NI - (1-dr)(fcinv-depr+wcinv)
FCFE = net profit – NetFCInv – WCInv + DebtFin
dividend payout
1-b
income based
high growth company
market based
mature company
asset based
start-up
PEG
p/e
/g
lower the better, implies undervalued
Yardeni model CEY
CBY-(b* LTEG)+ residual
CBY=bond yld
LTEG = consensus5yr growth earnings
p/e = 1/ (CBY-b*LTEG)
P/B
more stable than p/e
disadvantage: easy to influnence by accounting
misleading by diff. size of firm
= ROE(P/E)
=ROE)(1-B)(R-G)
=(ROE-g)/(r-g)
BVPS
total asset - total liabilities
/share outstanding
Justified P/B
P0/b0
=Roe-g
/r-g
=1+(roe-r)/(r-g)
high p/b, implies undervalued
P/S
meaningful even for distressed firm
sale/rev not easy to manipulated
useful for cycical, mature start-up compnay
disadv: rev recognication can be distorted
high sale <> high profit
=(E0/S0)(1-b)/(r-g)
Total invested capital
mv of cm +mv of ps + mv of debt
SUE standardized unexpected earnings
epst -e(epst)/std (epst-e(epst))
relative strength indicator
stock performance/performance of an equity index
harmonic mean
n/(1/x)
Residual income
NI-EQUITY CHARGE =NI-equity * re good for non-dividend, negative fcf ,high uncertain terminal value reliable on accounting data requires clean surplus relationship easy to be manipulated
=ROIC - effective capital charge * bb capital
-ni-equity charge - preferred stock dividend
use book value
EVA
NOPAT - (C%TC)
=EBIT(1-t)-(waccinvested capital)
invested capital = net WC + net fixed assets
=bv of LT debt + BV of equity
MVA (market value added)
MV -(bv of equity and debt)
RI Model
RI = Et - (r* Bt-1)
=(ROE-r)*Bt-1
v= Bo+ (ROE-R)/(r-g)*B0
Tobin’s q
mv of debt & equity/replacement cost of total assets
synegy
only for strategic
guideline public company method
use market values of similar public traded shares adj. for diff. in growth and risk between two companies
guideline transactions method
use the values from actual sales of controlling positions in either public or private companies
prior transaction method
uses sales prices from actual transactions in the subject company’s shares
DLOC
1- 1/(1+control premium)
total discount
1-(1-DLOC)*(1-DLOM)
FCFF from FCFE
=FCFE+interest expense - net borrowing
int. exp=INT*(1-t)
net borrowing=debt addition - repayment debt
excess earnings method
values tangible and intangible assets separately; this method is useful for small firms and when there are intangible assets to value.
