20140322 第8回valuation勉強会

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  • 1. Valuation in FED 2014/3/22(Sat) 1
  • 2. 自己紹介 •  名前   •  所属 •  勉強会に参加したきっかけ     2
  • 3. 3 Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations
  • 4. Review of previous studied contents 4
  • 5. 5 Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations
  • 6. What  is  value   In  the  context  of  valua3on  and     in  your  life  ? 6
  • 7. What is Value? •  Value is defining dimension of measurement in a market economy. •  Value is a particularly helpful measure of performance because it takes into account the long-term interests of all the stakeholders in a company,not just shareholders. •  Competition among value-focused companies also helps to ensure that capital,human capital,and natural resources are used efficiency across the economy,leading to higher living standards for everyone. 7 (P3)
  • 8. Fundamental principles of corporate finance Companies create value by investing capital to generate future cash flow at rate of return that exceed their cost of capital. (P17) 8
  • 9. Two core principles of value creation •  The combination of growth and return on invested capital(ROIC) relative to its cost is what drives value. –  Companies can sustain strong growth and high returns on invested capital only if they have a well-defined competitive advantage. •  Conservation of value –  Anything that doesn't increase cash flow doesn't create value.   –  M・M  theory 9 (P4)
  • 10. 10 Growth and ROIC:Drives of Value Return on investment capital Revenue growth Cash flow Cost of of Capital Value
  • 11. 11 Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations
  • 12. 12 Part2 Core Valuation Techniques 6. Framework for Valuation 7. Reorganizing the Financial Statements 8. Analysand Performance and Competitive Position 9. Forecasting Performance 10. Estimating Continuing Value 11. Estimating the Cost of Capital 12. Moving from Enterprise Value to per Share 13. Calculating and Interpreting Results 14. Using Multiple
  • 13. 13 Framework for DCF-Based Valuation EXHIBIT 6.1 Model Measure Discount factor Assessment Enterprise discounted cash flow Free cash flow Weighted average cost of capital Works best for projects, business units, and companies that manage their capital structure to a target level. Discounted economic profit Economic profit Weighted average cost of capital Explicity highlights when a company creates value. Adjusted present value Free cash flow Unlevered cost of equity Highlights changing capital structure more easily than WACC-based models. Capital cash flow Capital cash flow Unlevered cost of equity Compresses free cash flow correctly because capital structure is embedded within the cash flow.Best used when valuing financial institutions. Equity cash flow Cash flow to equity Levered cost of equity Difficult to implement correctly because capital structure is embedded within the cash flow. Best used when valuing financial institutions. (P104)
  • 14. 14 Home Depot:
 Enterprise DCF Forcaset year Free cash flow ($ million) Discount factor (@ 8.5%) Present value of FCF (& million) 2009 5,909 0.922 5,448 2010 2,368 0.850 2,013 2011 1,921 0.784 1,506 2012 2,261 0.723 1,634 2013 2,854 0.666 1,902 2014 3,074 0.614 1,889 2015 3,308 0.567 1,874 2016 3,544 0.522 1,852 2017 3,783 0.482 1,822 2018 4,022 0.444 1,787 Continuing value 92,239 0.444 40,966 Present value of cash flow 62,694 Midyear adjustment factor 1.041 Value of operations 65,291 Value of excess cash - Value of long-term investments 361 Value of tax loss carry-forwards 112 Enterprise value 65,764 Less:Value of debt (11,434) Less:Value of capitalized operating leases (8,298) Equity value 46,032 Number of shares outstanding(December 2008) 1.7 Equity value per share 27.1 Forecasting performance Estimating Continuing Value
  • 15. 15 Enterprise valuation of 
 a multibusiness company Unit A Unit B Unit C Corporate center Value of operations Nonoperating assets Enterprise Value Value of debt Equity Value Exhibit6.3 P106 Value of operating units 200 30 560 125 200 225 520 40 360
  • 16. 16 Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations
  • 17. Part3 Intrinsic Value and the Stock Market 15 Market value tracks return on invested capital and growth 16 Markets value substance, not form 17 Emotions and mispricing in the markets 18 Investors and managers in efficient markets 17
  • 18. Research Findings •  Valuation levels for the stock market as a whole clearly reflect the underlying fundamental performance of companies in the real economy. •  Companies with higher ROIC and those with higher growth are valued more highly in the stock market. •  Over the long term(10 years and more), higher ROIC and growth also lead to higher total returns to shareholders(TSR) in the stock market. •  Whether increasing revenue growth or return on capital will create more value depends on the company’s performance. 18
  • 19. Markets value substance, not form •  Managers can go to great lengths to achieve analysts’ expectations of EPS or to smooth earnings from quarter to quarter. •  Stock markets are perfectly capable of seeing the economic reality behind different forms of accounting information. •  Since investors value substance over form, managers need not worry about whether their share are spilt into smaller shares, traded in one or many developed stock markets, or included in a large stock market index. 19
  • 20. Patterns in mispricing •  Individual company share price deviate significantly from the company’s fundamentals value only in rare circumstances. •  Market wide price deviations from fundamental valuations are even less frequent, although they may appear to be becoming more so. •  Price deviation from fundamentals are temporary(typically three years). 20
  • 21. The implication of market efficiency for managers •  Managers should focus on driving return on ROIC and growth to create maximum value for shareholders. •  Managers need to understand their investor base, so they can communicate their company’s strategy for value creation effectively to different investor segments. •  Managers should not be distracted from their efforts to drive ROIC and growth by any short-term price volatility. 21
  • 22. 22 Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations
  • 23. Part4 Managing for Value •  Chap19 Corporate Portfolio Strategy •  Chap20 Performance Management •  Chap21 Mergers and Acquisitions •  Chap22 Creating Value through Divestitures •  Chap23 Capital Structure •  Cahp24 Investor Communications 23
  • 24. Constructing the portfolio 1.  Determine the company’s current market value, and compare it with the company’s value as is. 2.  Identify and value opportunities to improve operations internally. –  By increasing margins, accelerating core revenue growth, and improving capital efficiency. 3.  Evaluate whether some business should be divested. 4.  Identify potential acquisitions or other initiatives to create new growth, and improving on value. 5.  Estimate how the company’s value might be increased through changes in its capital structure or other financial strategy changes. 24
  • 25. Constructing the portfolio 25P420
  • 26. Value Creation Tree 26 Exhibit20.1 Value creation tree P431
  • 27. Short term value drivers •  Short-term value drivers are the immediate drivers of historical ROIC and growth. 27 Sales productivity Operating cost productivity The drivers of recent sales growth, such as price and quantity sold, market share, the company’s ability to charge higher prices relative to peers, sales force productivity Capital productivity The drivers of unit costs, such as the component costs for building an automobile or delivering a package. How well a company uses its working capital(inventories, receivables, and payables) and its property, plant , and equipment
  • 28. Medium-term value drivers •  Medium-term value drivers look forward to indicate whether a company can maintain and improve its growth and ROIC. 28 Commercial health Cost structure health Whether the company can sustain or improve its current revenue growth. The company’s product pipeline, brand strength, customer satisfaction Asset health Company’s ability to manage its costs relative to competitors over three to five years. How well a company maintains and develops its assets.
  • 29. Long term strategic value drivers and Organizational health •  Long term strategic value drivers –  The ability of an enterprise to sustain its current operating activities and to identify and exploit new growth areas. •  Organizational health –  Whether the company has the people, skills, and culture to sustain and improvement 29
  • 30. Value creation framework •  Acquisitions create value when the cash flows of combined companies are greater than they would have otherwise been. 30 Value Created for Acquirer= Value received – Priced Paid Value Created for Acquirer= (Standard Alone value of target) +Value of performance improvements) −(Market Value of target+Acquisition premium)
  • 31. Deciding on transaction type 31 Forms of divestiture Private transaction Private transaction Public transaction Joint venture Tracking stock Spilt off IPO Carve out Spin off (or demerger) Sales of part or all of a business to a strategic or financial investor A combination of part or all of a business with other industry players, other companies in the value chain, or venture capitalists A separate class of parent shares that is distributed to exiting shareholders of the parent company through a spin- off or sold to new shareholders through a carve out An offer to existing shareholders of the company to exchange their shares of the parent company for shares in the subsidiary Sale of all shares of a subsidiary to new share holders in the stock market Sale of part of the shares in a subsidiary to new shareholders in the stock market Distribution of all shares in a subsidiary to existing shareholders of the parent company
  • 32. Investor communications •  The overriding objective of investor communications must be to align a company’s share price with management’s perspective on the intrinsic value of the company. •  While there are no formulas for achieving good investor communications, we find that companies can improve in several areas. –  Companies need to know whether there is a material discrepancy between their intrinsic value and their market value that their investor communications should aim to close. –  For companies to understand their investor base. –  Many companies don’t tailor their communications to the investors who matter most to their share price. 32
  • 33. Part5 Advanced Valuation Issues •  25 Taxes •  26 Nonoperating Expenses,One-time Charges, Reserves, and Provisions. •  27 Leases, Pensions, and Other Obligations •  28 Capitalized Expenses •  29 Inflation •  30 Foreign Currency •  31 Case Study: Heineken 33
  • 34. 25 Taxes 1.  Operating taxes on the reorganized income statement 2.  Converting operating taxes to operating cash taxes 3.  Deferred taxes on the reorganized balance sheet 4.  Valuing deferred taxes 34
  • 35. Taxes •  In this chapter, we go through the steps of estimating operating taxes, converting taxes to operating cash taxes, and incorporating deferred taxes into a corporate valuation. 35
  • 36. 1 Operating taxes on the reorganized income statement •  To determine operating taxes, we need to remove the effects of nonoperating and financing items from reported taxes. •  Operating taxes are computed as if the company were financed entirely with equity. 36 P544 exhibit25.1
  • 37. Why EV to EBITA, not EV to EBIT 37 P318 exhibit14.4 •  Amortization is an accounting artifact that arises from past acquisitions. •  It is not tied to future cash flows, amortization will distort an enterprise value multiple.
  • 38. Why EV to EBITA, not EV to EBITDA •  Many practitioners use EBITDA multiples because depreciation is, strictly speaking, a noncash expense, reflecting sunk costs, not future investment. –  This logic does not apply uniformly. •  For many industries, depreciation of existing assets is the accounting equivalent of setting aside the future capital expenditure that will be required to replace the assets. •  In certain situations, EBITDA scales a company’s valuation better than EBITA. –  These occurs when current depreciation is not an accurate predictor of future capital expenditures. 38 P320 exhibit14.5
  • 39. Various type of cash flow in Finance 39 Corporate Finance Real Estate Finance EBIT Earnings before interest, taxes NCF Net Cash Flow Project Finance CFADS Cash flow available for debt service
  • 40. Computing operating taxes using public statement •  In practice, companies do not give a full breakout of the income statement by geography, but provide only the corporate income statement and a tax reconciliation. •  The most comprehensive method for computing operating taxes from public data is to begin with reported taxes and undo financing and nonoperating items one by one. 40 P546 Exhibit25.3
  • 41. Computing operating taxes: Simple methods to contend with incomplete date •  If marginal tax rates on nonoperating items are not reported, you will have to make an assumption about the tax jurisdiction in which nonoperating items are held. •  If you believe the company records interest expenses and other nonoperating items domestically, multiply the statutory tax rate by EBITA , and then adjust for other operating taxes. •  If you believe the company reports interest expense and other nonoperating items in various geographies proportional to each geography’s profits, multiply a blended global rate by EBITA, and adjust for other operating taxes. 41
  • 42. Simple approach for estimating operating taxes 42 P546 exhibit25.3
  • 43. 2 Converting operating taxes to operating cash taxes •  In the previous section, we estimated accrual based operating taxes as if the company were all equity financed. •  A cash tax rate represents value better than accrual- based taxes. •  To convert operating taxes to operating cash taxes, subtract the increase in net operating deferred tax liabilities from operating taxes. 43
  • 44. Operating DTAS and DTLs •  Warranty reserves(a DTA): –  The company records an expense for promised warranties when it sells the product. The government recognizes a deductible expense only when a product is repaired, so cash taxes typically understate the actual cash taxes paid. •  Accelerated depreciation(a DTL): –  The company uses straight line depreciation for its GAAP/IFRS reported statements and accelerated depreciation for its tax statements(because larger depreciation expenses lead to smaller taxes.) 44
  • 45. Nonoperating DTAs and DTLs •  Tax loss carry-forwards(a DTA) –  Since tax loss carry-forwards are valuable, they must be valued separately. •  Pension and postretirement benefits(a DTA) –  Deferred taxes arise when reported pension expense differs from cash contributions. •  Nondeductible intangibles(a DTL) –  Since operating taxes exclude the amortization tax shield from the investor’s statement, no adjustment for deferrals related to such intangible assets should be made to operating taxes. Instead, treat deferred taxes related to amortization of intangibles as nonoperating. 45
  • 46. Deferred tax asset and liability reorganization •  Exhibit 25.7 reorganizes the items in the note about deferred tax assets and liabilities into operating and nonoperating items. •  To convert accrual-based operating taxes into operating cash taxes, subtract the increase in net operating DTLs(net of DTAs) from operating taxes. 46 P552 exhibit25.7 $million Current year Operating taxes 760 Dcrease(increase) in net operating DTLs -150 Opearating cash taxes 610
  • 47. 3 Deferred taxes on the reorganized balance sheet •  Exhibit25.8 presents a reorganized balance sheet that includes the five deferred tax items from Exhibit 25.7. 47
  • 48. 4 Valuing deferred taxes 1.  Value as part of NOPLAT and subsequently enterprise value 2.  Value as part of a corresponding nonoperating asset or liability. 3.  Value as a separate nonoperating asset. 4.  Ignore as an accounting convention. 48
  • 49. Part5 Advanced Valuation Issues •  25 Taxes •  26 Nonoperating Expenses,One-time Charges, Reserves, and Provisions. •  27 Leases, Pensions, and Other Obligations •  28 Capitalized Expenses •  29 Inflation •  30 Foreign Currency •  31 Case Study: Heineken 49
  • 50. 26 Nonoperating Expenses, One-time Charges, Reserves, and Provisions. 1.  Nonoperating Expenses and One-time charges 2.  Reserves, and Provisions 50
  • 51. 26 Nonoperating Expenses, One-time Charges, Reserves, and Provisions. •  The conventional wisdom is to ignore nonoperating expenses in DCF calculations as backward-looking, one time costs. •  Research shows that the type and accounting treatment of nonoperating expenses can affect future cash flow and must be incorporated into operating cash flow. •  Adjustment for nonoperating expenses will also make assessments of past performance more accurate. 51
  • 52. Nonoperating expenses and one-time charges 1.  Reorganize the income statement into operating and nonoperating items. 2.  Search the notes for embedded one-time items. 3.  Analyze each extraordinary item for its impact on future operations. 52
  • 53. 1. Reorganizing the income statement •  For us to benchmark core operations effectively, EBITA and net operating profit less adjusted taxes(NOPLAT) should include only items related to the ongoing core business, regardless of their classification by accounting standards. •  Note how the account’s definition of operating income fluctuates wildly is relatively stable. 53 Exhibit26.1
  • 54. Analyzing each extraordinary item for impact on future operations •  A highly profitable company that reports a series of ,say, restructuring charges is likely to continue with similar charges in the future. •  A comprehensive list of nonoperating items and one-time charges is impractical, but the following items are the most common: –  Amortization expense, asset write-offs including write-offs of good will and purchased R&D, restructuring charges, litigation charges, and gains and losses on asset sales. 54
  • 55. 2.Provisions and their corresponding reserve •  Provisions are noncash expenses that reflect future costs or expected losses. •  For the purpose of analyzing and valuing a company, we categorize provisions into one of four types. –  Ongoing operating provisions –  Long term operating provisions –  Nonoperating provisions –  Income smoothing provisions 55
  • 56. Treatment of provisions and reserves 56
  • 57. Adjustment for the provisions •  In exhibit26.5, we present the abbreviated financial statements for a hypothetical company that recognize four types of provisions. –  A provision for future product returns –  An environmental provision for decommissioning the company’s plant in four years –  A provision for smoothing income –  A restructuring provision for future severance payments 57 P569 exhibit26.5
  • 58. List of nonoperating items 58 Long term operating provisions One-time restructuring provisions When a company decommissions a plant, it must pay for cleanup and other costs. When management decides to restructure a company, it will often recognize certain future expenses immediately. We recommend treating one-time provisions as nonoperating and treating the corresponding reserve as debt equivalent. Income smoothing provisions In some countries, provisions can be manipulated to smooth earnings. Provisions and taxes In most situations, provisions are tax deductible only when cash is dispersed, not when the provision is reported. Provisions related to ongoing operations When a company warranties a product, expects that some products will be returned , or self-insurance service, it must create a corresponding liability when that product or service is sold.
  • 59. Part5 Advanced Valuation Issues •  25 Taxes •  26 Nonoperating Expenses,One-time Charges, Reserves, and Provisions. •  27 Leases, Pensions, and Other Obligations •  28 Capitalized Expenses •  29 Inflation •  30 Foreign Currency •  31 Case Study: Heineken 59
  • 60. Leases, Pensions, and Other Obligations •  When a company borrows money to purchase an asset, the asset is listed on the company’s balance sheet matched by a corresponding obligation. However, clever use of existing accounting rules has allowed companies to keep many assets and their corresponding debts “off balance sheet”. •  The two most common forms of off-balance sheet debt are operating lease and securitized receivables. Another well-known type of off balance sheet item is unfunded pension liabilities. •  We show how to recapitalized each item on the balance sheet, compute the new ROIC , and compare the result with the raw calculations. 60
  • 61. Operating Lease •  The process for adjusting financial statements and valuation for operating leases consists of three steps. 1.  Reorganize the financial statements to reflect operating leases appropriately 2.  Build a WACC that reflects adjusted debt-to-enterprise value. 3.  Value the enterprise by DCF at the adjusted cost of capital. 61
  • 62. Leasing Example: Financial statement •  The value of capitalized operating lease is added to book assets to long term debt. •  Implicit lease interest expense is removed from operating profit. To compute the implicit interest expense, multiply the value of operating leases by the cost of secured debt, which we assume 5%. 62 P578 Exhibit27.1
  • 63. Leasing Example: NOPLAT Calculation 63 P579 Exhibit27.2
  • 64. Leasing Example: Invested capital calculation 64 P579 exhibit27.3
  • 65. Leasing Example: Current capital structure 65 P580 exhibit27.4
  • 66. Value the enterprise •  Since valuation is not affected by the treatment of operating leases, you may wonder why is worth the effort to adjust the financial statement. The answer is that capitalizing operating lease is a critical step in competitive benchmarking. 66 P582 exhibit27.6
  • 67. Estimating the value of leased assets •  Many in the investment banking community multiply rental expenses by 8times to approximate asset value. 67
  • 68. Securitized receivables •  By selling a portion of its receivables, the company will reduce receivables on the balance sheet and increase cash flow from operations on the accountant’s cash flow statement. •  In reality, the company pays a fee for the arrangement, reduces its borrowing capacity, and pays higher interest rates on unsecured debt. •  Interest rates are low because the collateral is short-term and generally recoverable compared with the company’s traditional unsecured debt. 68
  • 69. Pensions and other postretirement benefit •  Identify excess pension assets and unfunded liabilities on the balance sheet. •  Add excess pension assets to and deduct unfunded pension liabilities from enterprise value. •  To reflect accurately, the economic expenses of pension benefits given to employees, remove the accounting pension expense from cost of sales, and replace it with the service cost and amortization of prior service costs reported in the notes. 69
  • 70. Analyzing and valuing pensions DuPont example •  Under the new U.S standards, the balance sheet must match the actual funding status in every period. 70 P588 exhibit27.7
  • 71. Value excess pension assets and unfunded pension liabilities •  To incorporate pensions for a company with net excess assets, add(1-marginal tax rate)×net pension assets to enterprise value, as excess pension assets will lead to fewer required contributions in the future. •  To value companies with net unfunded liabilities, deduct (1- marginal tax rate)× net pension liabilities from enterprise value. 71
  • 72. Adjust the income statement for pensions •  The remaining items- interest cost, expected return on plan assets, and amortization of loss- are related to the performance of the plan assets, not the operation of business. 72 P589 exhibit27.8