Tài chính doanh nghiệp - Chapter 12: Financial statement analysis: applications

Chapter 12Financial Statement Analysis: ApplicationsPresenter’s namePresenter’s titledd Month yyyyevaluation of a company’s past performance Copyright © 2013 CFA Institute219992000200120022003200420052006200720082009201020112012evaluation of a company’s past performance: appleCopyright © 2013 CFA Institute3$ (millions)evaluation of a company’s past performance: appleCopyright © 2013 CFA Institute4Fiscal Year($ millions)2010200920082007Net sales$65,225$42,905$37,491$24,578Gross margin25,68417,22213,1978,152Net income (NI)14,0138,2356,1193,4952010200920082007Gross margin (% sales)39%40%35%33%evaluation of a company’s past performance: appleCopyright © 2013 CFA Institute5Panel A: Data for Apple Inc.Fiscal Year($ millions)2010200920082007Cash and marketable securities$51,011$33,992$24,490$15,386Total current assets41,67831,55530,00621,956Total assets 75,18347,50136,17124,878Total current liabilities20,72211,50611,3619,280evaluation of a company’s past performance: appleCopyright © 2013 CFA Institute6forecastingCopyright © 2013 CFA Institute7Sales ForecastExpensesGross ProfitOperating ProfitAssets LiabilitiesCash FlowforecastingCopyright © 2013 CFA Institute8Sales ForecastExpensesGross ProfitOperating ProfitAssets LiabilitiesCash FlowforecastingCopyright © 2013 CFA Institute9Sales ForecastExpensesGross ProfitOperating ProfitAssets LiabilitiesCash FlowforecastingCopyright © 2013 CFA Institute10Sales ForecastExpensesGross ProfitOperating ProfitAssets LiabilitiesCash FlowITERATIONS IN FORECASTINGCopyright © 2013 CFA Institute11Forecast DebtForecast Interest ExpenseForecast Income and TaxesForecast Cash FlowSales ForecastExpensesGross ProfitOperating ProfitAssets LiabilitiesCash Flowforecasting OPERATING PROFIT BASED ON HISTORICAL MARGINS Johnson & Johnson (NYSE: JNJ) U.S. health care conglomerate, founded in 1887. 2009 sales of around $61.9 billion from its three main businesses: pharmaceuticals, medical devices and diagnostics, and consumer products.For the four years prior to 2009, average operating profit margin was approximately 25.0%. Baidu (NASDAQ: BIDU)Chinese language internet search engine, established in 2000 and went public on NASDAQ in 2005.Revenues for 2009 were 4.4 billion renminbi (RMB), an increase of 40% from 2008 and more than 14 times greater than revenues in 2005.For the four years prior to 2009, average operating profit margin was approximately 27.1%. Copyright © 2013 CFA Institute12forecasting OPERATING PROFIT BASED ON HISTORICAL MARGINS Johnson & Johnson (NYSE: JNJ) 2009 sales were $61.9 billion. For the four years prior to 2009, average operating profit margin was approximately 25.0%. Actual operating profit for 2009 was $15.6 billion.Actual operating profit margin for 2009 was 25.2%. Baidu (NASDAQ: BIDU)2009 revenues were 4.4 billion renminbi (RMB).For the four years prior to 2009, average operating profit margin was approximately 27.1%. Actual operating profit for 2009 was RMB1.6 billion.Actual operating profit margin for 2009 was 36.4%.Copyright © 2013 CFA Institute13Assessing credit qualityCredit risk: Risk of loss caused by a debtor’s failure to make a promised payment Credit analysis: Evaluation of credit riskRisk in a particular transaction or for a particular security Obligor’s overall creditworthinessCopyright © 2013 CFA Institute14Techniques for Assessing credit qualityCredit scoring—statistical techniquesPeriod-by-period cash flow projectionsAnalysis of business and financial risk factorsCopyright © 2013 CFA Institute15Assessing credit quality: exampleBombardier Inc.BAE Systems plcEBITDA/Average assets7.5%10.1%Debt/EBITDA3.93.1Retained cash flow to debt6.1%13.7%Free cash flow to net debt–7.0%7.7%Copyright © 2013 CFA Institute16Stock screeningUniverse of StocksStocks Meeting Criteria Copyright © 2013 CFA Institute17SelectionEXAMPLE OF STOCK SCREENSStocks Meeting CriterionCriterionNumberPercent of TotalP/E 02,90756.04%Dividend yield > 0.5%1,57130.29%Meeting all four criteria simultaneously1011.95%Copyright © 2013 CFA Institute18Source for data: and back-testingValuation metrics + Accounting metricsEvaluation of screen using “back-testing”Caveats when back-testing:Survivorship biasLook-ahead biasData-snooping biasCopyright © 2013 CFA Institute19Two hypothetical screening strategiesStrategy A Invest in stocks that are components of a global equity index, have an ROE above the median ROE of all stocks in the index, and have a P/E less than the median P/E. Strategy BInvest in stocks that are components of a broad-based U.S. equity index, have a ratio of price to operating cash flow in the lowest quartile of companies in the index, and have shown increases in sales for at least the past three years.Copyright © 2013 CFA Institute20Two hypothetical screening strategies: avoid unintentional selectionsStrategy A Invest in stocks that are components of a global equity index, have an ROE above the median ROE of all stocks in the index, and have a P/E less than the median P/E.What if Net income was < 0 and Equity < 0?Strategy BInvest in stocks that are components of a broad-based U.S. equity index, have a ratio of price to operating cash flow in the lowest quartile of companies in the index, and have shown increases in sales for at least the past three years.What if operating cash flow was < 0?Copyright © 2013 CFA Institute21analyst adjustments Importance (materiality). Is an adjustment to this item likely to affect the conclusions? In other words, does it matter? In an industry where companies require minimal inventory, does it matter that two companies use different inventory accounting methods?Body of standards. Is there a difference in the body of standards being used (U.S. GAAP versus IFRS)? If so, in which areas is the difference likely to affect a comparison?Methods. Is there a difference in accounting methods used by the companies being compared?Estimates. Is there a difference in important estimates used by the companies being compared?Copyright © 2013 CFA Institute22investmentsInvestmentsUnrealized gains and losses on the income statement versusUnrealized gains and losses not on the income statement but instead recognized in equity.If two otherwise comparable companies have significant differences, it may be useful to adjust.Copyright © 2013 CFA Institute23Inventory: example Company A(FIFO)Company B(LIFO)Current assets (includes inventory)$300,000$80,000LIFO reserveNA$20,000Current liabilities$150,000$45,000Copyright © 2013 CFA Institute24NA = not applicableInventory: example Company A(FIFO)Company B Unadjusted(LIFO basis)Adjusted(FIFO basis)Current assets (includes inventory)$300,000$80,000$100,000Current liabilities$150,000$45,000$45,000Current ratio2.00 1.782.22Copyright © 2013 CFA Institute25Goodwill and intangible assetsSCHWAMTDMarket capitalization on January 2010 (market price per share times the number of shares outstanding)$21,871 $11,525 Total shareholders’ equity as of most recent quarter $5,073 $3,551 Goodwill$528 $2,472 Other intangible assets$23 $1,225 Copyright © 2013 CFA Institute26The MV/BV for the companies isSCHW $21,871/$5,073 = 4.3AMTD $11,525/$3,551 = 3.2Note: MV/BV equals the total market value of the stock (the market capitalization) divided by total stockholders’ equity. It is also referred to as the price-to-book ratio because it can also be calculated as price per share divided by stockholders’ equity per share.Goodwill and intangible assetsCopyright © 2013 CFA Institute27($ millions)SCHWAMTDTotal stockholders’ equity$5,073 $3,551 Less goodwill$528 $2,472 Book value, adjusted$4,545 $1,079 Adjusted MV/BV 4.810.7($ millions)SCHWAMTDTotal stockholders’ equity$5,073 $3,551 Less goodwill$528 $2,472 Less other intangible assets$23 $1,225 Tangible book value$4,522 ($146)MV/tangible book value 4.8NMNM = not meaningfulOff-Balance-Sheet FinancingUse disclosures to assess a company’s financial position as if off-balance-sheet obligations (e.g., operating leases) were included in its total liabilities.Steps:Determine present value of future operating lease payments.Add present value of future operating lease payments to total debt and to total assets.Adjust expenses to Include depreciation expense, interest expense.Exclude rent expense.The adjustments for operating leases essentially treat the transaction as if the asset subject to the operating lease had been purchased rather than leased. Copyright © 2013 CFA Institute28SummaryFinancial statement analysis applications discussed in this presentation includeEvaluating a company’s past performance.Projecting a company’s future performance.Assessing the credit quality of a potential debt investment.Screening for potential equity investments.Adjusting a company’s financial statements to facilitate cross-sectional comparison.Copyright © 2013 CFA Institute29