英国名校布里斯托大学财务分析和证券估值课程5

Forecasting the future
Changes in macroeconomic factors
Forecasted economic variables
Business analysis
Industry operation and key industry statistics Industry structure (Porter’s 5 forces) Firm’s strategy (differentiation, cost leadership, focus) and synergy effects; SWOT
Week 16
Forecasting
Process of fundamental analysis
Business analysis
Understanding the Past
Accounting analysis
Financial analysis
Forecasting
Valuation
Trading on the valuation
Forecasted financial statements
Forecasted ratios
Forecasting horizon
Terminal period assumptions
Forecasting framework
Forecast sales Forecast margins Forecast depreciation rate Operating expenses Financial expense Forecast interest rate Forecast tax rate Tax expense Pro Forma Income Statement Pro Forma Cash Flow Statement Forecast distribution to equity holders Pro Forma SoFP Net financial obligations Net operating assets Forecast leverage Forecast turnover
Two key decisions
• What is the forecasting horizon?
– For how long into the future forecasts need to made.
• What to do after the end of forecasting horizon?
Financial analysis
Evaluate performance and financial risk and changes in profitability and financial risk in terms of business strategy AND accounting choice. Cross-sectional and time series comparison
Forecasting horizon
2. Long enough to allow that abnormal firm-specific profitability and margins revert to industry mean (given that asset turnover and leverage are stable). Period for this to happen usually lower than under 1.
Forecasting details
• How to forecast necessary items to obtain forecasted pro-forma SoFP and Income Statement?
• Details in the booklet – pp.13-15
• Note: – Focus on critical ratios, in particular when forecasting individual expense margins and turnover ratios – For forecasted turnover ratios you can use either ending SoFP values (as advised in Lundholm and Sloan) or beginning values (as advised in Palepu et al.)
Process of fundamental analysis
Understanding the past
Economic factors
GDP, inflation, interest rates, FX rates, oil & commodity prices, business cycle; sensitivity of Business to these factors
Recall: Accounting relations that govern reformulated statements
• Reformulated SoFP: OSE = NOA – NFO
• Reformulated Income – Unusual operating items
• Free cash flows (FCF) and free cash flows to equity (D or FCFE) can be calculated once pro-forma SoFP and Statement of Comprehensive Income are constructed: D = CI – ΔOSE FCF = OI - ΔNOA
Forecasting horizon
Recall: • ROE = RNOA + FLEV x [RNOA – NBC] • RNOA = PM x AT = OI/Sales x Sales/NOA • FLEV = NFO/SE • SE = NOA – NFO
If sales growth constant (1) and profit margins constant (2) 1 and 2 combined lead to expense growing at sales growth rate. If sales growth constant (1) and asset turnover constant (3) 1 and 3 combined lead to (net operating) assets growing at sales growth rate. If sales growth constant (1), asset turnover constant (3) and financial leverage constant (4) 1, 3 and 4 combined lead to financial obligations growing at sales growth rate
– An analyst has to make assumptions about profitability and growth rate that will be constant after the forecasting horizon.
Forecasting horizon
• We cannot forecast to infinity. When to stop? • Until a firm reaches steady state: state when there will be no changes in forecasting assumptions, i.e.: 1. Sales growth constant 2. Margins (operating, net, borrowing cost) constant. 3. Asset turnover constant 4. Financial leverage constant • These four assumptions ensure that all SoFP and Income Statement items grow at the same rate as sales (see next slide for details). • Note: These conditions should hold on average, so that no systematic deviations are expected after forecasting horizon.
Mean reversion in profitability is a result of: - disappearance of competitive advantage. Very rarely, competitive advantage lasts long (e.g. Coca Cola). - reversal of temporary accounting distortions We use industry (not economy-wide) mean because: - the industries may share permanent accounting distortions; and - WACC may vary across industries
Forecasting horizon
When we can assume that these conditions are met? 1. When industry (or firm-specific) sales growth settle to economy-wide steady-state level. This ensures that accounting distortions when growth rate is not constant are corrected. E.g. in start-up biotech industries high RD depresses profitability when growth rate is increasing. Once growth rate is stable, profitability is also stable.