equity analysis & valuation

8/19/2019 Equity Analysis & Valuation

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Equity Analysis &

ValuationAshutosh Jaiswal

MoF, RBSC


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Represents a claim of ownership on acompany’s net assets.

Net assets are excess of company’s assetso er lia!ilities.

Equity


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Global equity Mkt Cap Share- Top 20 countries ( as on20 2!

"nite# States$ %&'

China$ (' Japan$ ('

"nite# )in*#om$ +'

Cana#a$ %'

France$ % '

ermany$ -'

Australia$ -'

n#ia$ -'

Bra/il$ -'

South )orea$ -'0on* )on*, China$ 1'

Swit/erlan#$ 1'Spain$ 1'

Russia$ 1' Netherlan#s$ &'South Africa$ &' Swe#en$ &' Mexico$ &' taly$ &'

Source2 3orl#Ban4


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Global G"# Share- Top 20 countries ( as on20 $!

"nite# States 1('

China &+ '

Japan ('ermany +'France 5'

"nite# )in*#om %'

Bra/il %'

Russian Fe#eration %'

taly -'

n#ia - '

Cana#a -'

Australia -'

Spain 1')orea, Rep. 1'

Mexico 1'n#onesia &'

6ur4ey &' Netherlan#s &' Sau#i Ara!ia &' Swit/erlan# &'


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%eal %eturns on Global Equity Securities 'on s an 'illsurin)

*00-200+

Source 7 8. 9imson, :. Marsh, an# M. Staunton ;1


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Co,,on Sharehol ers

• S h a r e i n t h e o p e r a t i n * p e r f o r m a n c e o f t h e c o m p a n y .?wnership

interests

• C l a i m o n a s s e t s a f t e r a l l l i a ! i l i t i e s h a e ! e e n p a i # .Resi#ual

claimants

• @ o t i n * r i * h t s o n m a A o r c o r p o r a t e # e c i s i o n s .

o ernanceparticipants


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Votin) %i)hts

@otin*ri*hts

Statutoryotin*

Cumulati eotin*

Shareclasses

@ote !yproxy


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E,be e ptions

Calla!lecommon

shares :uta!le commonshares


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#re.erence Shares (#re.erreStock!

Ran4 a!o e common stoc4 for #i i#en#payments an# li ui#ation claims

Sharehol#ers #o not share in the rm’soperatin* performance

enerally #o not ha e otin* ri*hts

9i i#en#s are xe# an# typically hi*herthan common #i i#en#s


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"i/i en s on #re.erence Shares

Cumulati e Noncumulati e

:articipatin* Nonparticipatin

*


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#ossible A /anta)es o.Con/ertible #re.erence Shares

8arn a hi*her #i i#en#

?pportunity to share in pro ts

Bene t from a rise in the price of thecommon shares

:rice is less olatile than the commonshare price


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#ri/ate Equity Securities

8 uity securities

:ri ate

@enture capital

De era*e#!uyouts

:ri ate

in estment inpu!lic e uity:u!lic


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n/estin) in 1on o,estic EquitySecurities

• Buy an# sell shares #irectly in forei*nmar4ets.

9irectin estment

• lo!al #epository receipts ; 9R>• American #epository receipts ;A9R>• lo!al re*istere# share ; RS>•

Bas4et of liste# #epository receipts ;BD9R>

9epository

receipts;9R>


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%eturn Characteristics o. EquitySecurities

9i i#en#income

:rice chan*e;capital *ain>

Forei*nexchan*e *ainsor lossesRein este##i i#en#s


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,pact o. %ein/este "i/i en s on Cu,ulati/e %eal %eturnsin the 3S3 Equity Market4 *005200+

Source: 9imson, Marsh, an# Staunton ;1


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Metho s .or Esti,atin) %iskan %eturn

0istorical #ata• A era*e rate of return• Stan#ar# #e iation

:ro!a!ility #istri!ution of possi!le returns• 8xpecte# return• Stan#ar# #e iation


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#re.erence Shares Are 6ess%isky than Co,,on Shares

Dess ris4

)nownli ui#ation alue

:riorityclaim onincome

Fixe##i i#en#


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9hy ssue Equity:

Raise capital

Finance re enue2*eneratin* acti ities

8nsure *oin* concernstatus

ncreaseli ui#ity

Mer*ers an#ac uisitions

Stoc42!ase#compensation


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Goals .or Mana)in) Equity

ncrease!oo4 alue

Maximi/emar4et

alue

• ncrease netincome

• Retain more

earnin*s• ssue shares

• Mana*e in estors’expectations


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Accountin) %eturn on Equity (% E!Financial Year Ending

31 Dec 2008 31 Dec 2007 31 Dec 2006Pfizer

Net income $8,104,000 $8,144,000 $19,337,000Total stockholders’ equity $57,55 ,000 $ 5,010,000 $71,358,000

( )

!"#13"%000,010,5$000,55,57&$

000,104,8$'()

!9#11"%000,358,71$000,010,5&$

000,144,8$'()

"*+)*+) N

'()

"008

"007

1

=+

=

=+

=

+=

−t t

t

t


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Market Value 'ook Value an#rice-to-'ook %atio

Mar4et alue of e uity E Mar4et price per share Sharesoutstan#in*Mar4et alue of e uity E "SG&+.=H +,H5


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The Cost o. Equity

Companywants toraise e uitycapital

Company notcontractuallyo!li*ate# tosharehol#ers

3hat is

the costofe uity


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n/estor;s %equire %ate o. %eturn

n-estor’s minimum required rate o.return

/ost o.equity

)stimate ith ricin2 models

di-idend discount model & %,ca ital asset ricin2 model &/6 %,

etc#


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ntrinsic alue of e uity is :@ of future#i i#en#sSuita!le for rms with history of #i i#en#payments an# *oin* concern

"i/i en "iscount Mo el


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"i/i en "iscount Mo el-Gor on Gro8th


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:rice of a perpetual preferre# stoc4 payin*5.5


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Annual #i i#en#E 5 per share8xp #i *rowth rate E %'Re uire# rate of return E ('

8 uity alueE

E


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Multi Sta*e 9i i#en# *rowth

Variations o. ""M


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FCF8E CF?2FC n L Net !orrowin*s

FCF8 E cash ow a aila!le for e uity

hol#ersCF?E cash ow from operationsFC n E Fixe# capital n estment

=ree Cash =lo8 to Equity Mo el


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&. CA:M7

1. ?ther approaches inclu#e a##in*

corporate !on# ris4 premium to ris4 freerate

A thou)ht on the iscountrate


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:rice calculation !ase# on some multiple ofmeasures such as 8:S, !oo4 alue, cash

ow, sales etc that are associate# with theperformance of the company

n#ustry or sector speci c ratios are alsouse# such as oil reser es for oil company,

AR:" for mo!ile companies, lan# !an4 forreal estate companies..

Multiplier Mo els


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Daw of one price#entical assets shoul# sell for the same

price

Compares price multiples !etween thecompany the !enchmar4 to measurealue

e.*. Company :ISM .


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"ses m4t alue or fair alue estimate of netassets of the company

oo# for companies with minimal intn*i!leassets:ro i#es a *oo# !aseline for the aluation?ther metho#s shoul# !e use# tosupplement this mo#el

Asset 'ase Valuation


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>ear

"#S E#S

Share#rice

TTM#?E

0 $3 0E @320E - -

* 23* E 3+@E - -

+ 23B*E 3 @E - -

B 23 @E 3$BE - -

23@@E 3$0E - -

@ 23 $ 300 @03+0 23B

23$2 $3*0 @ 3 + $32

$ 23 * $3 @ @*3+ 3

2 23 $3 0 @ 3B2 @32

E


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6he aluation #ate is at en# of year 5. 6hecompany has &


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