Reading 22: Industry and Company Analysis Flashcards
Growth relative to GDP growth
-“GDP growth plus x%” or “increase at the growth rate of GDP times 1 + x%”
Market growth and market share
-begins with an estimate of industry sales (market growth) and then company revenue is estimated as a percentage of industry sales (market share)
Forecast COGS
=(historical COGS/revenue) x (estimate of future revenue)
=(1-gross margin) x (estimate of future revenues)
Net Debt
- gross debt minus cash, cash equivalents and short-term securities
- net interest expense is gross interest expense minus interest income on cash and short-term debt securities
Income Tax Espenses
1) statutory tax rate: percentage tax charges in the country where the firm is domiciled
2) effective tax rate: income tax expense as a percentage of pretax income on the income statement
3) cash tax rate: cash taxed paid as a percentage of pre tax income
***income tax expense = cash tax due plus changes in deferred tax liabilities - deferred tax assets
Projected AR
(days sales outstanding) x (forecasted sales/365)
Return on invested capital (ROIC)
NOPLAT / Invested Capital
NOPLAT = (Net Operating Profit Adjusted for Taxes)
Invested Capital = (Operating Assets minus Operating Liabilities)
***ROIC is return to both equity and debt and is preferable to ROE. Allows comparisons on firms with different capital structures
Return on Capital Employed
-similar to ROIC, but uses pretax operating earnings in the numerator to facilitate comparison between companies that face different tax rate
Porters Five Forces
1) Threat of substitute
2) Intensity of Industry Rivalry
3) Bargaining power of suppliers
4) bargaining power of customers
5) threat of new entrants
Elastic Demand
-The percentage reduction in unit sales is greater than the percentage increase in price, and a price increase will decrease total sales revenue.
Cannibalization Factor
new product sales that replace existing product sales / total new product sales
Normalized earnings
-expected mid-cycle earnings or alternatively expected earnings when the current (temporary) effect of events or cyclicality are no longer affecting earnings.
