Business Analysis and Valuation Exam Notes

effect 7 NOA1=NOA0+OIt (C1-I1) NFO1=NFO0+NFE1 (C1-I1)+d1 NFA1=NFA0+NFI1 (C1-I1)-d1 CSE1=CSE0+OI1 NFE1 d1 NI1=OI1 NFE1 (C1-I1) = d1+F1 d1=div+ sh atomic number 18 buyback share issues F=net purchases of FAs raise on FAs net issue of debt + recreate on debt d=C-I+NFI-NFA d=C-I-NFE+NFO FCF=OI-NOA (Method 1) FCF=NFA-NFI+d (Method 2) FCF=NFO+NFE+d CSE=NOA+NFA/(-NFO) CSE1=CSE0+Earnt-dt lowest operating(a) Accruals = OI1 C1 or NOA I1 If C-I-i d tote up or buy down debt. If C-I-i d borrow or turn out lending. The aim of return from investing in a firms expect is its belongings period return. (div+P1)/P0. Topic 8Reformulated CSE Statement CSE0 +Net transactions with s/holders +Share issues Share buy backs Dividends +Comprehensive Income +NI inform +/- securities avail. For sale +/- currency translations +/- hedging +/- anterior earnings restatements CSE1 Table 8. 1 of grungy Surplus Items OI Items Changes in accting for contingencies Additional minimum aid liabili ty measure income benefits of overtaking carry-forwards acquires valuate benefits of dividends gainful to ESOPs Unrealized gains and losses on impartiality securities avail. For sale Some adjustments of deferred assess valuation allowances funding status of tribute plans Financing inc (or exp) itemsPreferred dividends Unrealized gains on losses on debt securities avail. For sale Operating or Financing inc items F. C. translation gains (losses) Gains(losses) on derivative instruments for hedging purposes Restatement of prior years income due to accting principles. Bal/sheet items to be reclassified Credits to s/holders fairness for stock compensation exp. Dividends payable. Topic 9 Effective tax rate for opeproportionns Tax on OIOI before tax ReOI1=OI1 ( 1) NOA0 Operating PM from sales OI from gross sales ( afterward tax) sales Net CI Margin = CI/Sales RNOA = OI/Ave. NOA NBC = NFE/Ave. NFO RNFA = NFI/Ave. NFA ROCE = Earn (CI)/Ave.CSE OLLEV = OL/NOA Capitalization Ratio = NOA/CSE FLEV = NFO/CSE SPREAD = RNOA NBC Reformulated Bal/sheet FAs bills equivalents S/T investments S/T notes receivable* L/T debt investments FLs S/T borrowings Current maturities on L/T debt S/T note payable* L/T borrowings Lease obligations Preferred stock OAs & OLs All else Minority Interest CSE *notes are FA/Ls if they bear the mkt rate of interest. L/T equity investments are normally OAs if they are a 20% holding, put down at mkt shelter if avail. for sale or, at cost if held to maturity. S/T equity/marketable investments are OAs if part of a trading portfolio.If employ mop up excess cash = FA. Minority interest is a separate line item. And NOA NFO = CSE + Minority Int. Reformulated Income Statement Net sales -Expenses to hold sales =OI from sales (before tax) -Tax on OI from sales +Tax as describe +Tax benefit from NFE Tax allocated to former(a) OI =OI from sales (after tax) Other OI (exp) requiring tax alloc. Restructuring charges and asset impair. Merger exps Ga ins/losings on asset sales Gains/Losses on security transactions -Tax on other(a) OI After-tax operating items rightfulness share in subsidiary income Operating items in extraordinary inc wicked surplus op. items in Table 8. Hidden dirty surplus op. items OI (after tax) -NFE (after tax) +Interest exp -Interest inc. Realized gains/losses on FAs =NFE before tax -Tax benefit from NFE =NFE after tax Gains/loss on debt retirement +unrealized holding loss D-S items in Table 8. 1 (incl. Pref. dividends) Hidden d-s financing items -Minority Interest =Comp. Income to ordinary Topic 10 Reformulated CF Statement CF from operations + account cash from op. Net cash interest payments after tax CF from investing +Reported cash from inv. +Liquidation of assets +Sale of assets +Maturities of assets Purchases of additions Working Cash =FCF from op. ctivities Net Dividends +Dividends +Share buy back Share issue +Net Debt Financing Cash and Cash Equivalents + net payments to d/holders and issuer s =Cash paid for financing activities Topic 11 ROCE = RNOA+FLEV(RNOA-NBC) Implicit int. on OL= S/T borrowing rate (after tax) OL ROOA=OI+Implicit Int. (aft. tax)OA RNOA=ROOA+(OLLEVOLSPREAD)OLSPREAD = ROOA S/T borrowing rate (after tax) ROA=NI+Int Exp (aft. tax)Ave Total Assets Minority interest is added to numerator if any. 2 Drivers of RNOA RNOA = PM ATO PM = OI (aft. Tax)/Sales ATO = Sales/NOA (usually expressed as 1/ATO) PM Drivers PM = Sales PM + other items PMSales PM=Gross margin ratio Exp ratios =GMsales-Admin. expsales-Sell. expsales-R&Dsales-Operating taxessales Other Op. items PM=subsidiary incsales+other equity incsales+Special itemssales+other gains and lossessales Drivers of ATO (1/ATO) can be broken down into ratios for the individual assets and liabilities. Drivers of NBC is calculated from the heavy average of the costs for different sources of net financing. NBC=FONFO? aft. tax int. on FOFO-FANFO? aft. tax on FAFA-FANFO? Unrealized gains on FAFA+Pref. stockNFO? P ref. DivPref. stock+ Topic 12 OI = kernel OI from sales + perfume Other OI + Unusual ItemsRNOA=Core OI from SalesNOA+Core other OINOA+UINOA Core OI from salesNOA=Core sales PM? ATO=Core OI from salesSales? SalesATO NBC=Core NFENFO+UFENFO RNOA1=( sum sales PM1ATO0) +(ATO1Core Sales PM1) +(core other OI/NOA)+ (UI/NOA) Changes in core sales PM are driven by variable and fixed costs. Sales PM = (Sales VC FC)/Sales Contribution Margin Ratio = 1 (VC/Sales) OLEV=CM ratio/PM %Core OI=OLEV%Core sales CSE1=(sales11/ATO0) +(1/ATO1)Sales1 NFO1 Reformulated OI Core OI Core Sales Rev. Core CoS = Core GM Core Op. Exp. = Core OI from sales bef. Tax Tax on core OI from sales +Tax as reported +Tax benefit from NFETax alloc To core other OI Tax alloc to UI = Core OI from sales + Core other OI + Equity income in subsidiaries + stipend on pension assets + Other continuing inc not from sales Tax on core other OI = Core OI Unusual Items Special charges Special liability accruals Nonrecurring items Asset write-downs estimates Start-up costs expensed P/L from asset sales Restructuring charges P/L from discon operations Extraordinary op items Accounting charges Unrealized g/l on equity investments Gains from share issues Currency gains and losses Derivative g/l (operations) Tax allocated to unusual items = Comprehensive OI Topic 13 Earnings divisor i) Operating income (ii) Net financial expense (iii) Earnings Book value component (i) NOA (ii) NFO (iii) CSE Residual Earnings measure (i) ReOI1 = OI1 (F 1) NOA0 (ii) ReNFE1 = NFE1 (D 1) NFO0 (iii) RE1 = Earn1 (E 1) CSE0 comfort of NFO V0NFO=NFO+ReNFET? D+CVT? DT Value of NOA V0NOA=NOA0+ReOIT? F+CVT? FT Value of Equity V0E=CSE0+ReOIT? F+CVT? FT NFO is usually measured at market value. Therefore forecasted ReNFE are zero. Usually VoE=V0NOA-V0NFO save with ReNFE = 0, VE = VNOA Drivers of RE RE1 = ROCE1 (E 1) CSE0 (1) amount of s/holders investment (2) rate of return on investment relative to E.Drivers of ReOI ReOI1 = RNOA1 (F 1) NOA0 (1) amount of NOA put in place (2) gainfulness of assets relative to F. Drivers of ReNFE ReNFE1 = NBC1 (D 1) NFO0 (1) amount of net financial debt (2) NBC relative to D. AEG Measure (i) AOIG=OI1 + (F 1)FCF0 FOI0 (ii) ANFEG=NFE1+(D 1)F0 DNFE0 (iii) AEG=Earn1+(E-1)d0 EEarn0 V0NOA=1? F-1OI1+AOIGT? F Cost of capital ?E=? F+VoDV0E? F-? D P/B Ratio V0ECSE0=V0NOANOA0+NFO0CSE0V0NOANOA0-1 Forward P/E ratio V0EEarn1=V0NOAOI1+ELEV1V0NOAOI1-1NBC1 ELEV = NFE/Earnings Trailing P/E ratio V0E+d0Earn0=V0NOA+FCF0OI0 +ELEV0V0NOA+FCF0OI0-1NBC0-1