财务分析课程课件.ppt

25 二月 2023英国布里斯托大学财务英国布里斯托大学财务分析课程分析课程Week 12A Framework for Fundamental AnalysisBusiness AnalysisBusiness activities and capital marketsOperating activitiesFinancing activitiesInvesting activitiesThe firm:The value generatorThe Investors:The claimants on valueDebtholdersShareholdersSecondary DebtholdersSecondary ShareholdersCash from loansCash from share issuesDividends and cash from share repurchasesInterest and loan paymentsCash from sale of debtCash from sale of sharesThe Capital Market:Trading valueSource:Penman,p.8What are we doing?Financial analysts are:information intermediaries;they digest information and provide summary information to the public/less sophisticated investors.especially important where capital markets are well developed.They are doing:Fundamental analysis:contextual analysis of all publicly available information in order to value the company.Technical analysis:spotting share price time-series patterns in order to predict movement of prices.What are we doing?Part of fundamental analysis:Financial statement analysis and valuation of shares so as to give well informed investment advice to an equity investor.Similar to what sell-side equity within brokerage houses are doing(as opposed to buy-side analysts affiliated with institutional investors)Final product:equity research reportNote of caution in regard of financial statement analysis:Financial statement analysis can be done for various purposes:credit analysis,competitive benchmarking,analysis of mergers and acquisitions,etc.Different purposes require different approach to analysisFocus of this course:analysis of financial performance and financial position in order to forecast future payoffs to equityholdersWhy are we doing it?Social welfare:The activity of analysts make markets efficient.Therefore,contribution to efficient allocation of resources.Personal gains:If markets are not efficient,the proper analysis helps in identifying mispriced companies.1980s:market efficiency paradigm widely accepted passive investmentEvidence of market inefficiency active investment and a renewed interest in fundamental analysis(Warren Buffet)Fundamental analysis:anchoring on reliable information(accounting)rather than rumours and speculations;long-term perspective as opposed to short-term gainDot-com bubble:Dell illustrationLate 1990s:unlimited faith in prospect of new technology and internet firms;bubble burst in 2001For the y/e 2000 Dell had reported earnings of$1.7 billion on sales of$25.3 billion.The MV of Dells shares at the time was$146.4 billion3*the MV of GMC and Ford Motor Company combined(P/E 8.5/5.0 respectively)Dells shares traded at a P/E of 87.9!Despite healthy trading and forecasted growth Dells stock appeared over-valued.In 2000 the per share stock price fell from$58 in early 2000 to$29 in 2003.The price had only recovered to$40 in 2005.Dot-com bubble:What were the analysts doing?They were riding the wave:involved in short-term speculation of the market mood rather than providing more sober picture to their clients based on fundamentals of the companies.Analysis based on internet clicks that do not generate any incomeConflict of interest:Many brokerage houses affiliated with investment banks:the better picture of business,more lucrative business is created for the banks(SEOs,mergers,etc.)Dot-com bubble:The role of financial statementsThe role of F/S is to“anchor the investor on the rising tide of speculation”with hard informationEarnings did matter!Losses reported by new economy firms during the bubble turned out to be a good predictor of failureSurviving firms reported earnings turned out to be a better indicator of future performanceMost of the intangible assets disappearedThe much-criticised SoFP(B/S)also provided good forecasts.The ratio of debt assumed to pursue intangibles was large relative to tangible assets and that ratio predicts impending failureProcess of fundamental analysisBusiness analysisTrading on the valuationAccounting analysisFinancial analysisForecastingValuationUnderstandingthe PastProcess of fundamental analysisBusiness analysisEconomic factorsIndustry structure Competitive strategyCorporate strategyAccounting analysisEvaluation of the extent to which a firms accounting captures the underlying business realityUnderstanding accounting distortionsFinancial analysisAnalysis of financial performance and financial position using ratio and cash flow analysisProcess of fundamental analysisForecasting the futureForecasting of payoffs through forecasts of balance sheet,income statement and cash flowsValuationConverting forecast in the estimates of equity value by using some of the available valuation modelsTrading on the valuationInvestment recommendation:hold,buy or sellProcess of fundamental analysisFinancial Statements Year 1Current financial statementsOtherinformationValuation of equityFinancial Statements Year 2Financial Statements Year 3ForecastsConvert forecasts to valuationValuationValue=Present value of future payoffsDeposit account,Loan,Bond=PV of future interest receivable+principalInvestment project=PV of future net cash flows from the projectCall option=PV of future expected difference between share price and strike priceHouse=PV of future rentsEquity=PV of future payoffs to shareholdersValue of the firm=Value of debt+Value of equityNote:Valuation Asset pricingValuation is about current value of various classes of assetsAsset pricing is about determining returns to various classes of assetsWhat generates value to shareholders?Value of the firm=Value of debt+Value of equityValue of the operations and investment=Value of debt+Value of equityMiller-Modigliani:Capital structure irrelevanceDividend payout irrelevanceIn perfect and efficient capital markets,the value is generated only in operating activities.Business analysisEconomic environmentIndustryFirmEconomic factorsGDP forecastsMaximum rate at which business can grow in the long runInterest ratesEffect on costs of borrowingEffect of CHANGES in interest rates consumption vs saving decision:lower interest rates,more consumption,higher salesInflationAffects allocation of capital(capital escapes to countries with lower inflation or investment in commodities or real assets)Economic factorsForeign exchange ratesImportant for companies exposed to foreign markets(input,output or investment)Oil and other commodity pricesKey inputs to many businessesLook for the companys hedging,risk management policies and use of derivativesBusiness cycleSensitivity of profitability to business cycle varies across industriesSensitivity of sector profitability to key macroeconomic factorsIndustry analysisUnderstand industry operations supply,production,distribution and marketing processes,technology,nature of the productEffect of industry structure on the profitabilityPorters five forces analysisIntensity of competition determines the potential for creating abnormal profitsWhether abnormal profits are kept by the industry is determined by the relative bargaining power of the firms in the industry and their customers and suppliersPorters 5 forces analysisIndustry profitabilityBargaining power of buyersThreat of substitute productsThreat of new entrantsRivalry among existing firmsBargaining power of suppliersDegree of actual and potential competitionBargaining power in input and output marketsCompetitive strategyCost leadershipFocus on making internal processes more efficientOrganisational focus on cost controlCompetition on priceDifferentiationFocus on quality and uniquenessInvestment in R&D,engineering and marketing;Organisation fosters creativity and innovationPremium charged for products or servicesFocusA niche strategy that supplies one of the market segments with exactly what they want,be it low cost or a differentiated productKey question:How sustainable is competitive advantage?Usually,not in the long runCorporate strategySingle or multiple business?Diversify or not?Yes,ifEconomy of scope(lower transaction costs inside than outside the firm)Increased market powerImportant for companies exposed to foreign markets(input,output or investment)No ifResult of managerial empire-building and lack of expertise