MarketAnalysis(投资分析与投资组合管理).pptx

Lecture Presentation Software to accompanyInvestment Analysis and Portfolio ManagementSeventh Editionby Frank K. Reilly & Keith C. BrownChapter 13Chapter 13Stock Market AnalysisQuestions to be answered: How do we apply the basic reduced form dividend discount model (DDM) to the valuation of the aggregate stock market? What would be the prevailing value of the market as presented by the S&P 400 based upon the reduced form DDM? What would be the prevailing value of the market (S&P 400) based upon the value of free cash flow to equity (FCFE) model?Chapter 13Stock Market Analysis What are the two components involved in the two-part valuation procedure? Given the two components in the valuation procedure, which is more volatile? What steps are involved in estimating the earnings per share for an aggregate market series? What variables affect the aggregate operating profit margin and how do they affect it?Chapter 13Stock Market Analysis What are the variables that determine the level and changes in the market earnings multiplier? How do you arrive at an expected market value and an expected rate of return for the stock market? What has happened to the values for the other relative valuation ratios - i.e., the P/BV, P/CF, and P/S ratios?Chapter 13Stock Market Analysis What additional factors must be considered when you apply this microanalysis approach to the valuation of stock markets around the world? What are some differences between stock market statistics for the U.S. versus other countries?Applying the DDM Valuation Model to the Market The stream of expected returns The time pattern of expected returns The required rate of return on the investmentnnjkgDkgDkgDV)1 ()1 (.)1 ()1 ()1 ()1 (02200gkDPVjj1gkEDEPi111/Applying the DDM Valuation Model to the MarketDeterminants of the Earnings Multiplier:1. The expected dividend payout ratio2. The required rate of return on the stock3. The expected growth rate of dividends for the stockgkEDEPi111/Market Valuation Using the Reduced Form DDM Estimating k and g for the U.S. equity market The nominal risk-free rate The equity risk premium The current estimate of Risk Premium and k Estimating the growth rate of dividends (g)g = f(b,ROE)ROE = Net Income / EquityEstimating Growth Rate Growth rate of dividends is equal to Retention rate - the proportion of earnings retained and reinvested Return on equity (ROE) rate of return earned on investmentAn increase in either or both of these variables causes an increase in the expected growth rate (g) and an increase in the earnings multiplier Return on Equity (ROE)EquityCommon Assets TotalAssets TotalSalesSalesIncomeNet EquityCommon IncomeNet Profit Total Asset Financial Margin Turnover Leverage=xxMarket Valuation Using the Free Cash Flow to Equity (FCFE) ModelFCFE is:+ Net Income+ Depreciation Expense- Capital Expenditures- D in Working Capital- Principal Debt Repayments+ New Debt issuesMarket Valuation Using the Free Cash Flow to Equity (FCFE) Model The Constant Growth FCFE Model The Two Stage Growth FCFE ModelgpDkMarket Valuation Using Relative Valuation Approach The price-earnings ratio (P/E) The price-book value ratio (P/BV) The price-cash flow ratio (P/CF) The price-sales ratio (P/S)Market Valuation Using Relative Valuation Approach Two-part valuation proceduregkDPVjj1gkDPj11gkPDj1Market Valuation Using Relative Valuation Approach Importance of both components of value1. Estimating the future earnings per share for the stock-market series2. Estimating a future earnings multiplier for the stock-market seriesEstimating Expected Earnings Per Share Estimating expected earnings per shareEstimate sales per share for a stock-market seriesEstimate the operating profit margin for the seriesEstimate depreciation per share for the next yearEstimate interest expense per share for the next yearEstimate the corporate tax rate for the next year Estimating Gross Domestic Product Estimating sales per share for a market seriesEstimating Expected Earnings Per Share Alternative estimates of corporate net profits Direct estimate of the net profit margin based on recent trends Estimate the net before tax (NBT) profit margin Estimate an operating profit margin to obtain EBITDA; estimate depreciation and interest to arrive at EBT; estimate the tax rate (T) and multiply by (1-T) to estimate net incomeEstimating Expected Earnings Per Share Estimating aggregate operating profit margins Capacity utilization rate Unit labor costs Rate of inflation Foreign competitionEstimating Expected Earnings Per Share Estimating depreciation expense time series trends estimate based on property, plant, and equipment sales and turnover depreciationEstimating Expected Earnings Per Share Estimating interest expense debt levels total assets expected capital structure interest rates subtract result from EBIT to estimate EBTEstimating Expected Earnings Per Share Estimating the tax rate depends on future political action multiply (1-T) times the EBT per-share to estimate the net income per shareEstimating the Earnings Multiplier for a Stock Market Series Determinants of the earnings multiplier Dividend payout ratio required rate of return on common stock the expected growth rate of dividends for the stocksgkEDEPi111/Estimating the Earnings Multiplier for a Stock Market Series Estimating the required rate of return (k) inversely related to the earnings multiplier determined by risk-free rate, expected inflation, and the risk premium for the investment Estimating the dividend payout ratio (D/E) active decision or residual outcome? time series plots long-run perspectiveEstimating the Earnings Multiplier for a Stock Market Series Estimating an Earnings Mutiplier: An Example The Direction of Change Approach Specific Estimate Approach Calculating an Estimate of the Value for the Market seriesOther Relative Valuation Ratios Price to book value ratio (P/BV) Price to cash flow ratio (P/CF) Price to sales ratio (P/S)Analysis of World Markets Individual country analysis analyze economy and security markets before analyzing alternative industries or companies macro techniques micro techniques technical analysis top down approachThe InternetInvestments OnlineEnd of Chapter 13Stock Market AnalysisFuture topicsChapter 14 Why do industry analysis? Competition and expected industry returns Estimating an industry earnings multiplier