公司理财教学资料chap008alternate-clean-koz.ppt

Stock Valuation,Chapter 6,Copyright 2011 by The McGraw-Hill Companies,Inc.All rights reserved.,McGraw-Hill/Irwin,Corporate Finance Big Ideas So Far,Cash Flow EmphasisRatio Analysis of Financial StatementsFinancial Statement ForecastingExternal Financing NeededInternal growth rate,Sustainable growth rateTime Value of Money Present value vs Future valuePerpetuity,annuity and growing cash flowsBond valuation;yield-to-maturityStock valuation,Corporate Finance Big Ideas So Far,Accurate-can be calculated with precision:Cash Flow Calculations(2 Approaches)Ratio Analysis of Financial StatementsFinancial Statement ForecastingExternal Financing NeededInternal growth rate,Sustainable growth rateTime Value of Money Present value vs Future valuePerpetuity,annuity and growing cash flowsBond valuation;yield-to-maturityTheory-Provides an Estimate:Stock valuation,Key Concepts and Skills,Stock prices depend on future dividends and dividend growthCompute stock prices using the dividend growth modelUnderstand how growth opportunities affect stock valuesAppreciate the PE ratioKnow how stock markets work,Parker Hannifin Share Price(20 yrs)11.4%cagr(94-13),5,Chapter Outline,6.1 The Present Value of Common Stocks6.2 Estimates of Parameters in the Dividend Discount Model6.3Growth Opportunities6.4Price-Earnings Ratio6.5Some Features of Common and Preferred Stock6.6The Stock Markets,6.1 The PV of Common Stocks,The value of any asset is the present value of its expected future cash flows.Stock ownership produces cash flows from:Dividends Capital GainsValuation of Different Types of StocksZero GrowthConstant GrowthDifferential Growth,Case 1:Zero Growth,Assume that dividends will remain at the same level forever,Since future cash flows are constant,the value of a zero growth stock is?The present value of a perpetuity:,Zero Growth Example,Suppose Big Deal Company will pay an annual dividend of$2.00 per common share that will never increase or decrease.The market rate of return is 8.5%.What is the maximum amount you should be willing pay for a common share of Big Deal Corporation?Formula for Zero Growth Model:P=Div/RSolution:P=$2.00/.085 P=$23.53,Case 2:Constant Growth,Since future cash flows grow at a constant rate forever,the value of a constant growth stock is the present value of a growing perpetuity:,Assume that dividends will grow at a constant rate,g,forever,i.e.,.,.,.,Constant Growth Example,Suppose Big D,Inc.,just paid a dividend of$.50.It is expected to increase its dividend by 2%per year.If the market requires a return of 15%on assets of this risk level,how much should the stock be selling for?P0=.50(1+.02)/(.15-.02)=$3.92,A Word About Dividends in the Constant Growth Model,It is critical to understand that in the constant growth model calculations are based on the next period dividendIf a situation only provides information on the last dividend,calculate the next dividend using the growth rate,Case 3:Two-Stage Dividend Growth,Case 3:Two-Stage Growth,Assume that dividends will grow at different rates in the short term,then grow at a constant rate thereafter.Two steps to value a Differential Growth Stock:Estimate future dividends in the short term.Estimate the future stock price when the stock becomes a Constant Growth Stock(case 2).Compute the total present value of both of these,using a discount rate.,Case 3:Differential Growth,Assume that dividends will grow at rate g1 for N years and grow at rate g2 thereafter.,.,.,.,.,.,.,Case 3:Differential Growth,Dividends will grow at rate g1 for N years and grow at rate g2 thereafter,0 1 2,NN+1,Case 3:Two-Stage Growth,We can value this as the sum of:a T-year annuity growing at rate g1,plus the discounted value of a perpetuity growing at rate g2 that starts in year T+1,Case 3:Two-Stage Growth,Consolidating gives:,Or,we can“cash flow”it out.,A Two-Stage(Differential)Growth Example,A common stock just paid a dividend of$2.The dividend is expected to grow at 8%for 3 years,then it will grow at 4%in perpetuity.What is the stock worth?The discount rate is 12%.,With the Formula,With Cash Flows,0 1 234,0 1 2 3,The constant growth phase beginning in year 4 can be valued as a growing perpetuity at time 3.,Estimating Growth(g),The value of a firm depends upon its growth rate,g,and its discount rate,R.Where does g come from?g=Retention ratio Return on retained earningsExample:Suppose a company has a retention ratio of 70%and earns an ROE of 12%.What is the Growth Rate,g?g=.70 X.12g=.084=8.4%,Where Does R Come From?,The discount rate can be broken into two parts.The dividend yield The growth rate(in dividends)In practice,there is a great deal of estimation error involved in selecting R.Cases calling for special skepticism:Stocks not paying dividendsStocks with g expected to equal or exceed R,Using the DGM to Find R,Start with the DGM:Total Return=Dividend Yield+Dividend GrowthNote that D1/P0 is the dividend yield and g is the dividend growth(and also the capital gains yield),Rearrange and solve for R:,Example:Using DGM to Find R,Imagine that a Solar Corp.s last dividend was$.65 per share.Solars dividends are growing at a rate of 4%and the current price per share is$11.25.What is the market R implicit in Solars price?R=(D1/P0)+gR=(.65 x 1.04)/11.25+.04R=.10 or 10%,Example 8.3 p.239,Key observation-Illustrates that DGM implies that dividend growth rate=share price appreciation rate.,26,Parker Hannifin Share Price(20 yrs)11.4%cagr(94-13),Parker Hannifin Dividend History(20 yrs)10.1%cagr(95-13),Procter&Gamble Share Price(20 yrs)9.2%cagr(94-13),Procter&Gamble Dividend History(20 yrs)11.0%cagr(95-13),S&P500 Price(15 yrs)(1.6%cagr 99-13),S&P500 Dividends(15 yrs)6.2%cagr(2000-13),Total Payout,Dividends may not be a firms only cash payoutRecently many firms have repurchased shares,another form of payoutUsing the Dividend Growth Model,the price of a share will be higher if considering total payout rather than just dividends,Example:Total Payout Valuation,A firm forecasts income of$4.00 per share and will payout 30%as dividends,30%as share repurchase and will retain the rest.Its growth rate is 5%and required return is 10%.What is the price of a share?Dividend Growth Model:P0=(4.00 X.30)/(.1-.05)=$24.00Notice that the price is based on dividend(30%of earnings)growth onlyTotal Payout Model:P0=(4.00 X.60)/(.1-.05)=$48.00Notice that the price is based on total payout(60%of earnings=30%for dividends and 30%for share repurchase)growth,6.3Growth Opportunities,Growth opportunities are opportunities to invest in positive NPV projects.The value of a firm can be conceptualized as the sum of the value of a firm that pays out 100%of its earnings as dividends plus the net present value of the growth opportunities.,Prerequisites to Growth,Two conditions must exist if a company is to grow:It must not pay out all of its earnings as dividends;and,It must invest in projects with a positive NPV,The No-Payout Firm,Why dont firms with no dividends have stock price of$0?Such firms believe their earnings are better used to pursue growth opportunitiesInvestors pay a stock price that conforms to their own calculus of the NPVGO of the no-payout firmThe dividend growth model does not work in valuing this firmThe differential growth model can,but evaluating the timing of changes in growth is tricky,6.4Price-Earnings Ratio,Many analysts frequently relate earnings per share to price.The price-earnings ratio is calculated as the current stock price divided by annual EPS.The Wall Street Journal uses last 4 quarters earnings,Factors Impacting the P/E Ratio,Generally,firms with higher growth have greater P/E than those with no such prospectsA firms R also impacts the P/E ratio.The P/E ratio and R are inversely related.A firm with conservative accounting principles will generally have a higher P/E ratio than one with aggressive policies.Why?,S&P500 with Trailing P/E,40,P&G with trailing P/E,41,P&G Relative Strength(vs S&P500),42,P&G Trailing P/E,43,P&G Relative P/E,44,6.5 Features of Common Stock,Voting rights(Cumulative vs.Straight)Proxy votingClasses of stockOther rightsShare proportionally in declared dividendsShare proportionally in remaining assets during liquidationPreemptive right first shot at new stock issue to maintain proportional ownership if desired,Features of Preferred Stock,DividendsStated dividend must be paid before dividends can be paid to common stockholders.Dividends are not a liability of the firm,and preferred dividends can be deferred indefinitely.Most preferred dividends are cumulative any missed preferred dividends have to be paid before common dividends can be paid.Preferred stock generally does not carry voting rights.,6.6 The Stock Markets,Dealers vs.BrokersNew York Stock Exchange(NYSE)Largest stock market in the worldLicense Holders(formerly“Members”)Entitled to buy or sell on the exchange floorCommission brokersSpecialistsFloor brokersFloor tradersOperationsFloor activity,NASDAQ,Not a physical exchange computer-based quotation systemMultiple market makersElectronic Communications NetworksThree levels of informationLevel 1 median quotes,registered representativesLevel 2 view quotes,brokers&dealersLevel 3 view and update quotes,dealers onlyLarge portion of technology stocks,Stock Market Reporting,49,Quick Quiz,What determines the price of a share of stock?What determines g and R in the DGM?Discuss the importance of the PE ratio.What are some of the major characteristics of common and preferred stock?Discuss the nature of the various markets for stocks.,