Bài giảng Essentials of Investments - Chapter 14 Financial Statement Analysis

INVESTMENTS | BODIE, KANE, MARCUS Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin CHAPTER 14 Financial Statement Analysis 1 INVESTMENTS | BODIE, KANE, MARCUS 19-2 • Financial statement analysis can be used to discover mispriced securities. • Financial accounting data are widely available, but – Accounting earnings and economic earnings are not always the same thing! Financial Statement Analysis 2 INVESTMENTS | BODIE, KANE, MARCUS 19-3 • Income Statement: – Profitability over time • Balance Sheet: – Financial condition at a point in time • Statement of Cash Flows: – Tracks the cash implications of transactions. Financial Statements 3 INVESTMENTS | BODIE, KANE, MARCUS 19-4 Table 19.1 Consolidated Statement of Income for Hewlett-Packard, 2009 4 INVESTMENTS | BODIE, KANE, MARCUS 19-5 Table 19.2 Consolidated Balance Sheet for Hewlett-Packard, 2009 5 INVESTMENTS | BODIE, KANE, MARCUS 19-6 Table 19.3 Statement of Cash Flows for Hewlett-Packard, 2009 6 INVESTMENTS | BODIE, KANE, MARCUS 19-7 Accounting Versus Economic Earnings • Economic earnings – Sustainable cash flow that can be paid to stockholders without impairing productive capacity of the firm • Accounting earnings – Affected by conventions regarding the valuation of assets 7 INVESTMENTS | BODIE, KANE, MARCUS 19-8 Profitability Measures • ROE measures profitability for contributors of equity capital. – After-tax profit/book value of equity • ROA measures profitability for all contributors of capital. – EBIT/total assets 8 INVESTMENTS | BODIE, KANE, MARCUS 19-9 Past vs. Future ROE • ROE is a key determinant of earnings growth. • Past profitability does not guarantee future profitability. • Security values are based on future profits. • Expectations of future dividends determine today’s stock value. 9 INVESTMENTS | BODIE, KANE, MARCUS 19-10 Financial Leverage and ROE • ROE can differ from ROA because of leverage. • Leverage makes ROE more volatile. • Let t=tax rate and r=interest rate, then: 10            Equity Debt ROAROA1ROE rt INVESTMENTS | BODIE, KANE, MARCUS 19-11 Financial Leverage and ROE • If there is no debt or ROA = r, ROE will simply equal ROA(1 - t). • If ROA > r, the firm earns more than it pays out to creditors and ROE increases. • If ROA < r, ROE will decline as a function of the debt-to-equity ratio. 11            Equity Debt ROAROA1ROE rt INVESTMENTS | BODIE, KANE, MARCUS 19-12 Table 19.5 Impact of Financial Leverage on ROE 12 INVESTMENTS | BODIE, KANE, MARCUS 19-13 ROE = Net Profit Pretax Profit x Pretax Profit EBIT x EBIT Sales Sales Assets x x Assets Equity (1) x (2) x (3) x (4) x (5) x Margin x Turnover x Leverage Tax Burden Interest Burden Decomposition of ROE DuPont Method x 13 INVESTMENTS | BODIE, KANE, MARCUS 19-14 Decomposition of ROE ROA=EBIT/Sales X Sales/Assets = margin X turnover • Margin and turnover are unaffected by leverage. • ROA reflects soundness of firm’s operations, regardless of how they are financed. 14 INVESTMENTS | BODIE, KANE, MARCUS 19-15 Decomposition of ROE ROE=Tax burden X ROA X Compound leverage factor • Tax burden is not affected by leverage. • Compound leverage factor= Interest burden X Leverage 15 INVESTMENTS | BODIE, KANE, MARCUS 19-16 Table 19.6 Ratio Decomposition Analysis for Nodett and Somdett 16 INVESTMENTS | BODIE, KANE, MARCUS 19-17 Choosing a Benchmark • Compare the company’s ratios across time. • Compare ratios of firms in the same industry. • Cross-industry comparisons can be misleading. 17 INVESTMENTS | BODIE, KANE, MARCUS 19-18 Table 19.7 Differences between Profit Margin and Asset Turnover across Industries 18 INVESTMENTS | BODIE, KANE, MARCUS 19-19 Table 19.9 Summary of Key Financial Ratios 19 INVESTMENTS | BODIE, KANE, MARCUS 19-20 Table 19.9 Summary of Key Financial Ratios 20 INVESTMENTS | BODIE, KANE, MARCUS 19-21 Table 19.9 Summary of Key Financial Ratios 21 INVESTMENTS | BODIE, KANE, MARCUS 19-22 Table 19.9 Summary of Key Financial Ratios 22 INVESTMENTS | BODIE, KANE, MARCUS 19-23 Table 19.9 Summary of Key Financial Ratios 23 INVESTMENTS | BODIE, KANE, MARCUS 19-24 Figure 19.1 DuPont Decomposition for Hewlett-Packard 24 INVESTMENTS | BODIE, KANE, MARCUS 19-25 Economic Value Added • EVA is the difference between return on assets (ROA) and the opportunity cost of capital (k), multiplied by the capital invested in the firm. • EVA is also called residual income • If ROA > k, value is added to the firm. 25 INVESTMENTS | BODIE, KANE, MARCUS 19-26 Example 19.4 Wal-Mart • In 2009, Wal-Mart’s cost of capital was 5.9%. Its ROA was 9.6% and its capital base was $115 billion. • Wal-Mart’s EVA = (0.096-0.059) x $115 billion = $4.25 billion 26 INVESTMENTS | BODIE, KANE, MARCUS 19-27 • Accounting Differences – Inventory Valuation – Depreciation • Inflation and Interest Expense • Fair Value Accounting • Quality of Earnings • International Accounting Conventions Comparability Problems 27 INVESTMENTS | BODIE, KANE, MARCUS 19-28 International Accounting Differences • Reserves – many other countries allow more flexibility in use of reserves • Depreciation – US allows separate tax and reporting presentations • Intangibles – treatment varies widely 28 INVESTMENTS | BODIE, KANE, MARCUS 19-29 Figure 19.2 Adjusted Versus Reported Price-Earnings Ratios 29 INVESTMENTS | BODIE, KANE, MARCUS 19-30 The Graham Technique • Rules for stock selection: – Purchase common stocks at less than their working-capital value. – Give no weight to plant or other fixed assets. – Deduct all liabilities in full from assets. 30