专业估值(英文)

Market-Based Valuation: Price and Enterprise Value multiples

1. Methods: comparables and forecasted fundamentals (based on DCF model)

2. Ratios: P/E, P/B, P/S, P/CF, Dividend yield

3. Pros and Cons:

a) Meaningful when earning is negative?

b) Popular in the investment community?

c) Accounting practices can easily distort the ratio?

d) The primary determinant of investment value (how closely related earnings)?

e) Volatile and transitory?

4. Calculations

a) Trailing P/E= Market price per share/EPS over pervious 12 months

b) Leading P/E=Market price per share/EPS over next 12 months

c) P/B=Market value of equity/book value of equity

to

i. Book value of equity= Common shareholders’ equity= net asset –

preferred stock

d) P/s =Market value of equity/Total Sales

5. Key: estimate earnings

a) Normalized earnings

i. Historical average (average EPS over the most recent business cycle.

ii. Average return on equity=average ROE * current book value per share

b) Analyze the factors influence P/E: Gordan growth model

i. Justified trailing P/E= (1-b)*(1+g)/(r-g)

ii. Justified leading P/E=(1-b)/(r-g)

iii. Justified P/B ratio (ROE-g)/(r-g)

iv. Justified P/S ratio net profit margin (E/S)*justified trailing P/E

v. Divided yield: (r-g)/(1+g)

✓ Need to memorize the formulas, at least the one for justified trailing P/E

c) Others

i. P/E Regression

1. Predictive power is uncertain

2. over time

Relationship between P/E and fundamental variables may change

3. variables)

Multicollinearity is often a problem (the relationship among

ii. PEG=P/E/G

1. Stocks with lower PEG is more attractive, assuming similar risk

2. Limitations

a) Relationship between P/E and g is not linear

b) PEG does not account for risk

c) PEG does not reflect the duration of high-growth period

iii. TIC: total invested capita: includes cash and short – term investment

6. Terminal value

a) Reflect the earning growth that a firm can sustain over the long run

b) Two methods: fundamental vs multiples Justified P/E vs Benchmark P/E

i. Calculations

1. Terminal value in year n = Justified (Benchmark) leading P/E ratio *

forecasted earnings in year n+1

2. Terminal value in year n = Justified (Benchmark) trailing P/E ratio *

forecasted earnings in year n

ii. Pros and cons

1. Strength of comparables: based on market data exclusively, no

estimate for g, b, r

2. Weakness of comparables: mispriced benchmark will transfer the

error to the terminal value

7. P/CF

a) CF= Earnings plus noncash charges

i. Poxy1: net income + depreciation + amortization

ii. revenue

Does not account for changes in net working capital and non cash

b) Adjusted cash flow from operations

i. Adjusted CFO = CFO + net cash interest outflow * (1-tax rate)

ii. Interest expense: IFRS (operating or financing) GAAP (operating only)

c) FCFE: free cash flow to equity

i. FCFE=CFO – FCInv (fixed capital investment) + net borrowing

(issues-repayments)

d) EBITDA

i. For total enterprise value rather than equity value

e) Use trailing price for P/CF ratio

8. EV/EBITDA

a) Calculations of both parameters

b) Pros and cons

i. Pros

1. Compare firms with different leverage

2. Capital – intensive businesses with high levels of depreciation and

amortization

3. Always positive

ii. Cons

1. Impacted by the change of working capital and ignore different

revenue recognition

2. Ignore capital expenditures apart from depreciation

9. Cross-border valuation

a) Differences in accounting methods, cultures, risk and growth opportunities

b) P/adjusted CFO and P/FCFE are least affected (accounting methods and estimates)

10. Momentum indicators

a) Relate either the market price or a fundamental variable to the time series of historical or expected value

b) Indicators

i. Earnings surprise = reported EPS – Expected EPS

ii. Standardized unexpected earnings (SUE) = earning surprise/standard

deviation of earnings surprise (the smaller the better: patterns persist)

11. P/E for an index

a) Weighted harmonic mean = 1/(w1/x1+w2/x2…+wn/xn)

i. Wi: Weight of stock i

ii. Xi: PE of stock i

b) Weighted harmonic mean puts more weight on smaller values. Outliers shall be taken away.

Residual income valuation

1. Residual income (RI),

a) RI, economic profit = net income – opportunity cost of capital

b) RI(t)=E(t) – r* B(t-1)=(ROE-r)*B(t-1)

i. E(t): expected EPS for year t

ii. ROE: expected return on new investments

iii. R: required return on equity

c) V0 =B0 + (RI1/(1+r) + RI2/(1+r)2+…) = Current book value of equity + present value of expected future residual income

i. Difficult to estimate the RI pattern

ii. Compare with other models: use the current book value rather than

terminal value: value is recognized earlier  reduced forecast error

d) Single – Stage Residual income valuation model

i. Assuming constant dividend and earnings growth rate

ii. V0=B0 + ((ROE-r)* B0)/(r-g)

iii. Solve for g: market’s expectation of residual income growth assuming

intrinsic value = market price

e) RI model is most closely related to the P/B ratio

f) Continuing residual income”

i. Projected rate at which residual income is expected to fade: w (01. High w:

a) low dividend payout

b) historically high residual income persistence in the industry

2. Low w

a) High return on equity

b) Significant level of nonrecurring items

c) High accounting accruals

ii. PV of continuing residual income in year T-1 = RI(T)/(1+r-w)

1. w=1: RI at current level forever : RIT/r

2. w=0: RI drop immediately to zero in year T+1: RIT/(1+r)

3. Decline over time to zero T-1 = RI(T)/(1+r-w)

4. Decline to long run level: ((PT-BT)+RIT)/(1+r)

g) Strengths, weaknesses and applicable situations

i. Rely on accounting data: easy to find but can be manipulated and need

adjustments

ii. Terminal value not counted

iii. dividend

Applicable even if the cash flows are volatile and firms does not pay

iv. Focus on economic profitability

v. Assume the clean surplus relation holds

1. dividend

Clean surplus relationship = beginning book value + net income –

2. Violation: items are charged directly to shareholders’ equity

a) ROC forecast will not be accurate

b) Scenarios

i. foreign currency translation gains/loss

ii. minimum liability adjustment in pension accounting

iii. changes in the market value of debt and equity securities

classified as available-for-sale

2. Economic value added (EVA)

a) EVA = NOPAT – WACC *Invested capital = (EBIT * (1-t)) - $WACC

i. NOPAT: net operating profit after tax

ii. $WACC : dollar cost of capital

iii. Invested capital = net working capital + net fixed assets = book value of

long-term debt + book value of equity

b) Adjustment (book value to market value)

i. + R&D

ii. + Strategic investments that will generate returns in the future

iii. + Amortization expense and accumulated amortization

iv. Eliminate deferred tax (consider cash tax only)

v. Treat operating lease as capital lease

vi. Adjust non recurring items

vii. Add LIFO reserve to invested capital

viii. Add change in LIFO reserve to NOPAT

3. RI vs EVA

a) Both measure economic profit

b) RI starts from NI and minus the cost of equity

c) EVA starts from NOPAT and minus the cost of both equity and debt

4. Robin’s Q = (market value of debt + market value of equity)/ replacement cost of total assets

5. Market value added (MVA) = market value – invested capital

Private company valuation

1. Company Specific factors

a) Stage of lifecycle

b) Size : high risk premium and less access to public equity

c) Management quality and depth

d) Management/shareholder overlap

e) Quality of financial and other information

2. Stock-Specific Factors

a) Liquidity

b) Restrictions on marketability: agreements for not selling shares

c) Concentration of control

3. Usage of valuation:

a) Transaction

b) Compliance (financial reporting (units of public companies) and tax)

c) Litigation

4. Definition of valuation:

a) Fair market value:

i. arm’s length

ii. well-informed seller/buyer

iii. willing seller/buyer

b) Fair value for financial reporting: a)-iii

c) Fair value for litigation: similar to a)

d) Market value: a)+an asset that has been marketed

e) Investment value

i. Focus on one buyer

ii. Future cash flow, risk, discount rate, financing cost, synergy

f) Intrinsic value

5. Approaches

a) Income: expected future income

i. More mature than start-ups

ii. For early start-ups

iii. Normalized Earnings: firm earnings if the firm were acquired

1. Exclude non recurring/unusual items

2. Real estate shall be treated separately when

a) Different risk/growth characteristics than firm operations

b) Cost of the real estate will be reported as depreciation: adjust to

market-estimated rental expense

c) Incorporate synergies

iv. Estimating cash flow

1. Which value is used

2. Controlling vs non controlling equity interests

3. Scenario analysis

4. Be aware of the potential bias from management’s estimates

5. FCFF is usually more appropriate since WACC is less sensitive to

leverage change than cost of equity

v. Free cash flow method

1. estimated free cash flow discounted at a rate that reflects their risk

2. terminal value estimated five years out using constant growth model

vi. Capitalized cash flow method

1. Firm value = FCFF1/(WACC – g)

2. Value of equity = FCFE1/(r-g)

vii. Excess Earning methods

1. Excess earnings = firm earning – earnings required for working

capital and fixed assets

2. Intangible asset value = PV of streams of excess earnings

3. fixed assets

Firm value = Intangible asset value + values of working capital and

viii. Use CAPM, Expanded CAPM and Build-up methods: challenges from

beta estimation and premiums

b) Market: price multiples based on recent sales of comparable assets

i. For mature firms

ii. Refer to summaries on page 256

c) Asset-based: assets-liabilities

i. For early start-up or troubled firms, finance/investment firms, firms with

few intangible assets/natural resources

ii. Equity value = Asset Value = Debt value

6. Discounts and Premiums

a) Definitions

i. Discount for lack of control (DLOC): comparable values are for entire firm

while valuation is for minority interest

ii. Discount for lack of marketability (DLOM)): interest in the target

company is less marketable compared to comparables

b) Formulas

i. DLOC = 1-1/(1 + control premium)

ii. Total discount = 1- (1-DLOC)*(1-DLOM)

7. Challenges

a) Different valuation standards

b) Difficult to ensure the compliance

c) Guidelines limited

d) Different valuation definition