roe to cfroi greg collett,cfa 3.10.12
TRANSCRIPT
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www.credit-suisse.com/holtmethodology Introducing HOLT
HOLT
CONFIDENTIAL For Education and Training Purposes Only
From ROE to CFROI and
everything in between
CFA Institute
2012
Greg Collett CFA
+44 (0) 207 88 33 643
HOLT Custom Solutions
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CLARITY IS CONFIDENCE HOLT
Agenda
Introduction
Accounting
Performance MeasurementFade and Mean Reversion
Link to Valuation
Questions
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Accounting how it all flows around
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CLARITY IS CONFIDENCE HOLT
The Ideal Performance Metric
Question Problem
Does the metric allow fair comparisonsbetween old and new companies?
New assets = low returnOld assets = high return
How do you compare a short life techcompany to a longer life capital goodscompany?
Ratio vs IRR
Can you compare returns acrosscountries with high and low inflation?
Income statement reflects inflationBalance sheet to a lesser extent
Do the return and growth measures
track Total Shareholder Return (TSR)over time.
Does a rising return lead to greater
TSR?
Is the return measure subject toaccounting manipulation?
Financing manipulation does not alwaysimprove TSR
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CLARITY IS CONFIDENCE HOLT
The Ideal Performance Metric
Question ROE ROIC CROGI CROIGI CFROI
Old Assets/New
Assets? ? ? ? ?
Asset Life ? ? ? ? ?
Inflation ? ? ? ? ?
Accounting
Distortions ? ? ? ? ?
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RONA
ROIIC
ROCE
ROIC
CROIGI
CROGI
CFROI
ROE
Return on
Invested Capital
Return on Equity
Cash Flow
Return on
Investment
Cash Return on
Gross
Investment
Cash Return on
Inflation
Adjusted Gross
Investment
Comparison of Financial Performance Metrics
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Return on Equity
ROE is defined as Net Earnings / Book Equity.
It is an incomplete measure because it measuresthe return on assets not funded by debt.
ROIC
CROIGI
CROGI
CFROI
ROE
Return on Equity
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CLARITY IS CONFIDENCE HOLT
Return on Equity Changing Leverage Adds Noise to the Signal
Income 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
Costs 700 700 700 700 700 700 700 700 700 700 700
EBIT 300 300 300 300 300 300 300 300 300 300 300
Interest 100 90 80 70 60 50 40 30 20 10 0
PBT 200 210 220 230 240 250 260 270 280 290 300
Tax 60 63 66 69 72 75 78 81 84 87 90
Net Income 140 147 154 161 168 175 182 189 196 203 210
Debt 1000 900 800 700 600 500 400 300 200 100 0
Equity 0 100 200 300 400 500 600 700 800 900 1000
Deb/(Debt+Equity) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
ROE #N/A 147% 77% 54% 42% 35% 30% 27% 25% 23% 21%
0%
20%
40%
60%
80%
100%
120%
140%
160%
0
200
400
600
800
1,000
1,200
1 2 3 4 5 6 7 8 9 10 11
Debt Equity ROE
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- Expenses
Revenue
Profit
Understanding Inflations Impact on ROE
ROE =
Net Income
Owners Equity
Inventory
LIFO
FIFO
~
Depreciation~
Wages
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CLARITY IS CONFIDENCE HOLTSource: HOLT analysis
Inflation Can Seriously Distort ROE
0
5
10
15
20
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990
Reported ROE
using actual U.S.
inflation for a 6%
real IRRproject.
6% IRR Project
(Inflation Adjusted)
ReportedROE
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Return on Equity
Issue ROE Reason
Old Assets/New
AssetsNo
Neither net income nor equity
refect asset age
Asset Life NoNeither net income nor equity
refect asset life
Inflation NoNet income reflects inflation. Equity
is an historical value
Accounting
Distortions
NoBoth are subject to non-operating
distortions
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RONA
ROIIC
ROCE
Return on Invested Capital
ROIC is defined as NOPAT / Invested Capital and is key to Economic Profit analysis.
ROIC
CROIGI
CROGI
CFROI
ROE
Return on
Invested Capital
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CLARITY IS CONFIDENCE HOLT
Operating Profit (EBIT)
- Effective Tax Charge
= NOPAT (Net Operating Profit After Tax)
Total Assets
- Payables
- Other Current Liabilities
- Cash
= Invested Capital
Invested Capital
NOPATROIC=
Return on Invested Capital
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Current Dollar income which includesnoncash items such as depreciationand amortisation
Historical cost depreciated assets
Excludes off balance sheet items
Can we expect this ratio to tell
us anything useful aboutperformance?
NOPAT and Invested Capital
are not in constant dollars!
Invested Capital
NOPATROIC=
Return on Invested Capital Issues
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Accounting Items Can Distort the Return Calculation
Example: Two Plants
Managers A and B operate plants of equal capacity but with different ages
Plants each have 20 year life, original cost of assets = 1,000
Manager B is
penalized for
having a newer
plant!
Plant A Plant B
NOPAT 100 100
Age of Assets 10 0
Invested Capital 500 1,000
ROIC 20% 10%
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Worldwide Accounting and Reporting Issues Prevent Comparability
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Return on Invested Capital
Issue ROIC Reason
Old Assets/New
AssetsNo Asset age reduces assets
Asset Life No Not taken into account
Inflation NoNOPAT is current dollars,
Invested Capital is not
Accounting Distortions MaybeDepends on analyst
adjustments (op leases)
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Cash Return on Gross Investment
ROIC
CROIGI
CROGI
CFROI
ROE
Cash Return on
Gross
Investment
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NOPAT
+Depreciation+Other non-cash
items
Invested Capital
+
Accumulated
Depreciation
+
CapitalizedExpenses
... by adding back non-cash items to NOPAT and accumulated depreciation toInvested Capital
This captures the total value of investment in the asset base more accurately
Operating After
Tax Cash Flow
Gross Investment=CROGI
ROIC
ROE
Cash Return on Gross Investment
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Example: Two Plants
CROGI shows thatmanagers A and B
are achieving
similar cash returns
on the original
investment!
Plant A Plant B
NOPAT 100 100
Deprecia tion 50 50
Operating After TaxCash Flow
150 150
Invested Capi ta l 500 1,000
Accumulated
Depreciation
500 0
Gross Investment 1,000 1,000
CROGI 15% 15%
Cash Return on Gross Investment
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CROGI shows that
managers A, B and
C are achieving
similar cash returns
on the original
investment!
Plant A Plant B Plant C
NOPAT 100 100 100
Depreciation 50 50 0
Operating Leases 0 0 50
Operating After
Tax Cash Flow
150 150 150
Invested Capital 1,000 1,000 0
AccumulatedDepreciation
500 0 0
Gross CapitalisedLeases
0 0 1,000
Gross
Investment
1,000 1,000 1,000
CROGI 15% 15% 15%
Cash Return on Gross Investment Operating Leases
These scenarios assume zero net working capital
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Cash Return on Gross Investment
0.44
0.46
0.48
0.50
0.52
0.54
0.56
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Net PPE/Gross PPE
0.00
5.00
10.00
15.00
20.00
25.00
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
PPE Life
0.0
0.5
1.0
1.5
2.0
2.5
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Capex/Depreciation
Europe>1bn Eur ex Financials. Source Credit Suisse HOLT 2 Oct 2012
The Net/Gross plant ratio tells us that the PPE is
50% depreciated.
Capex/Depreciation is greater than one indicating
net growth
Plant life (GrossPPE/depreciation) has increased.
This could be caused by changes in sector
composition and weight over time.
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Cash Return on Gross Investment
Issue CROGI Reason
Old Assets/New
AssetsYES
Accumulated depreciation is
added back
Asset Life No Not taken into account
Inflation NoCash flow is current dollars,
Invested Capital is historical
Accounting Distortions MaybeDepends on analyst
adjustments (op leases)
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From an investors point of view..
What is the impact of inflation on the
investment made ten years ago?
Are you measuring return on what you
spent ten years ago or on what that
investment is worth in todays money(current Dollars)?
Cash Return on Gross Investment
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Differing Inflation Rates Make International Comparisons Difficult
Can you use CROGI to compare companies across time and in different countries?
Source Credit Suisse HOLT 2 Oct 2012
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CLARITY IS CONFIDENCE HOLT
Cash Return on Inflation Adjusted Gross Investment
CROIGI is defined as Cash Return / Inflation Adjusted Gross Investment.
ROIC
CROIGI
CROGI
CFROI
ROE
Cash Return on
Inflation
Adjusted Gross
Investment
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CLARITY IS CONFIDENCE HOLT
Operating After Tax
Cash Flow
Inflation Adjusted
Gross Investment
=CROIGI
Operating After TaxCash Flow
Gross Investment +
Inflation Adjustment on
Gross Investment
... by adding an inflation adjustment to the gross fixed assets toapproximate their value in todays money.
This gives a fair value to the entire asset base, regardless of age.
ROIC
CROGI
ROE
Cash Return on Inflation Adjusted Gross Investment
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Example: Two Plants
CROIGI shows that
plant As return is
actually less than
Bs when the value
of investment is
compared in todaysmoney!
* Assuming 2% Annual Inflation
Cash Return on Inflation Adjusted Gross Investment
Plant A Plant B
Operating After TaxCash Flow 150 150
Gross
Investment
1,000 1,000
Age 10 0
Inflation
Adjustment*
220 0
Inflation AdjustedGross Investment
1,220 1,000
CROIGI 12% 15%
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CLARITY IS CONFIDENCE HOLT
Year 1 2 3 4 5 6 7 8 9 10
USA Inflation 3.9% 2.8% 2.6% 2.4% 2.5% 2.3% 1.6% 0.6% 1.4% 2.2%
SA Inflation 13.5% 12.7% 10.4% 9.8% 8.8% 8.4% 7.8% 7.7% 6.8% 6.2%
Avg Exchange Rate 2.76 2.85 3.27 3.55 3.63 4.3 4.61 5.55 6.12 6.94
Life (Years) 10
Analysys in USD
Cost in USD 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
Accumulated Depreciation 100 200 300 400 500 600 700 800 900 1000
Net Asset Value 900 800 700 600 500 400 300 200 100 0
GCF 150 154 158 162 166 170 173 174 176 180 Grows with US inflation
Inflation Adjusted Cost 1,000 1,028 1,055 1,080 1,107 1,133 1,151 1,158 1,174 1,200 Grows with US inflation
ROIC 15% 17% 20% 23% 28% 34% 43% 58% 88% 180%
CROGI 15% 15% 16% 16% 17% 17% 17% 17% 18% 18%
CROIGI 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%
CFROI 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%
Analysys in ZAR
Cost in USD 2,760 2,760 2,760 2,760 2,760 2,760 2,760 2,760 2,760 2,760
Accumulated Depreciation 276 552 828 1,104 1,380 1,656 1,932 2,208 2,484 2,760
Net Asset Value 2,484 2,208 1,932 1,656 1,380 1,104 828 552 276 0
GCF 414 467 515 566 615 667 719 774 827 878 Grows with SA inflation
Inflation Adjusted Cost 2,760 3,111 3,434 3,771 4,102 4,447 4,794 5,163 5,514 5,856 Grows with SA inflation
ROIC 15% 19% 23% 29% 37% 48% 65% 94% 150% 318%
CROGI 15% 17% 19% 20% 22% 24% 26% 28% 30% 32%
CROIGI 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%
CFROI 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%
GP Factor in USA 1.00 1.03 1.05 1.08 1.11 1.13 1.15 1.16 1.17 1.20
GP Factor in SA 1.00 1.13 1.24 1.37 1.49 1.61 1.74 1.87 2.00 2.12
Notes
1. A South African company buys an asset in US$ in 1991 and places it on i ts books in ZAR. The asset does not get revalued
2. The company produces a profit stream that can be priced in US$ or ZAR. Products are sold at a local price or global commodity price
3. It is assumed that NDA (working capital) is zero for the CFROI calculation.
Why Is It Important to Adjust for Inflation?
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Cash Return on Inflation Adjusted Gross Investment
Issue CROIGI Reason
Old Assets/New
AssetsYES
Accumulated depreciation is
added back
Asset Life No Not taken into account
Inflation YESNumerator and denominator
are in current dollars
Accounting Distortions Maybe
Depends on analyst
adjustments (op leases)
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Cash Return on Inflation Adjusted Gross Investment
What if two projects with the same return
have different lives?
How do you select the correct one?
For the same investment would you choose
a 10% project with a 5 year life or a 10 yearlife?
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CLARITY IS CONFIDENCE HOLT31
Gross Cash Flow
Gross Investm ent
12,249
77,174
Gross Cash Flow
Gross Investm ent
5,449
34,343
Ericsson and GSKs returns look the same..but are they?
= =15.9
GLAXOSMITHKLINE PLC (2009)
= =15.9
ERICSSON LM (2009)
Source Credit Suisse HOLT 2 Oct 2012
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Cash Flow Return On Investment (CFROI)
ROIC
CROIGI
CROGI
CFROI
ROE
Cash Flow
Return on
Investment
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Gross Cash
Flow
Current
Gross
Investment
Life = 4 Years
50
10
100
Life helps measure the economic returnearned
today, by forecasting how much cash flow will
be received over a realistic time period.
Consider a 100 investment that earns 10 in
cash flows for 4 years. The CROIGI return
looks like 10% (10/100), yet when life is
considered, the economic return (CFROI) is
negative.
10% return?
CFROI = - 3.1%
Why is Project Life so Important?
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Infl. Adj.
Gross Cash
Flow
Current
Gross
Investment
10
100
Consider that same 100 investment that earns 10 in cash flows for 30 years.
The CROIGA return looks like 10%, however, the cash flows are forecasted to
last 30 years, making the economicreturn 9.68%.
10% return?
Non-Depreciating
Asset Release50
Life = 30 Years
CFROI = 9.68%
Why is Project Life so Important?
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CLARITY IS CONFIDENCE HOLT
CFROI Not Distorted By Asset Mix
100
Machine Tools
10 Years
Distribution Company
10
20
100
10 Years
10
75
IRR = 3.0%
IRR = 8.3%
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CLARITY IS CONFIDENCE HOLT36
Gross Cash Flow
Gross Investm ent
12,249
77,174
Gross Cash Flow
Gross Investm ent
5,449
34,343
CFROI accounts for asset life differences offering more insightthan a ratio
= =15.9
GLAXOSMITHKLINE PLC (2009)
= =15.9
ERICSSON LM (2009)
Asset li fe: 6.2 years
Asset li fe: 12.4 years
CFROI = 6.9
CFROI = 12.6
Traditional Return Metric (Ratio ) CFROI
Source Credit Suisse HOLT 2 Oct 2012
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Adjustments Are Essential to True Economic PerformanceMeasurement
ROIC
CROIGI
CROGI
CFROI
ROE
Cash Flow
Return on
Investment
Adjustments
Accumulated Depreciation
Inflation Adjustment
Asset Life
Enterprise levelmeasure
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From Cash To CFROI (Internal Rate of Return)
Net Monetary Assets
+ Inflation Adjusted Land & Improvements
+ Investments (Non-Equity Method )+ Inventory (w/ LIFO Inventory Reserve)
+ Other LT Assets less Pension Assets
Net Income (Before Extraordinary Items)
+/- Special Items (after tax)
+ Depreciation/Amortization Expense
+ Interest Expense
+ R&D Expense
+ Rental Expense
+ Minority Interest Expense
+ Net Pension Cash Flow Adjustment
+ LIFO charge to FIFO Inventory
+ Monetary Holding Gain/Loss
- Equity Method Investment Income
100
Inflation Adjusted
Gross Investment
13-Year Asset Life
10
25
Gross Cash Flow
CFROI = 6.0%
Non-Depreciating Assets
Net Book Assets
+ Accumulated Depreciation
+ Inflation Adjustment to Gross Plant
+ LIFO Inventory Reserve+ Capitalized Operating Leases
+ Capitalized R&D
- Equity Method Investments
- Pension Assets
- Goodwill
- Non-Debt Monetary Liabilities & Deferred Taxes
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PositiveSpread
Business
NeutralSpread
Business NegativeSpread
Business
Discount Rate(Cost of Capital)
Increase returns
Hold returnsand grow assets
Increase returns
Then grow
Increase returns
ReduceReinvestment
Divest or Liquidate
Return Measure
StrategicOptions
Rules for Value Creation What is Good Growth?
Managing for shareholder value requires an understanding of the trade-off between cash flow returns and growth. Capitalshould be allocated to positive spread businesses and projects that are creating value. Marginal businesses shouldconcentrate on improving operating efficiencies instead of growth.
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40
0
60
120
180
240
-5 0 5 10 15 20 25
0
20
40
60
80
-5 0 5 10 15 20 25
0
100
200
300
400
500
600
700
800
900
1000
-5 0 5 10 15 20 25
0
100
200
300
400
500
600
700
-5 0 5 10 15 20 25
CFROI Observations: Fade Happens
0
50
100
150
200
250
300
-5 0 5 10 15 20 25
0
50
100
150
200
250
300
350
400
450
500
-5 0 5 10 15 20 25
Ending CFROI(t+5)Initial CFROI(t+1)
10-15%
6-10%
15-20%
USA Large & Mid-Cap:
1980-2005
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41
0
20
40
60
80
100
120
140
-20 -10 0 10 20 30 40
`
0
5
10
15
20
25
30
35
40
45
-20 -10 0 10 20 30 40
`
0
100
200
300
400
500
600
700
-20 -10 0 10 20 30 40
0
20
40
60
80
100
120
140
-20 -10 0 10 20 30 40
0
50
100
150
200
250
-20 -10 0 10 20 30 40
0
10
20
30
40
50
60
70
80
90
-20 -10 0 10 20 30 40
Growth Observations: Fade Really Happens!
Initia l Growth
(t+1)
20-30
10-20
-20 to -10
Ending Growth (t+5)
USA Large & Mid-Cap:
1985-2005
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Drivers of Firm Value
Firm Value = PV Cash Flows + Market Value of Investments
Returnsvs. Discount Rate,
Asset Growth and hence, Sales Growth,
Competitive Advantage Period,
Fade Rate of Returns and Asset GrowthFirm Value =
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Valuation Continuum
PE Multiple
EPS Growth
PEG RatioEV/EBITDA
Price/Sales
Tobins Q
Price/Book
Value/Cost
Discounted EVA
Gordon Growth
Dividend Discount Model
Discounted FCFF
HOLT CFROI DCF
Real Options
Increasing Sophistication and Completeness
Relative Valuation
Cash Distribution Models
Cash Production Models
Variance andProbability Models
Monte Carlo
Simulations
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Case Study: NOKIA
ROIC rises while price, TSR and other measures are fallingwhy?
NOKIA CORPORATION
0.00
500.00
1000.00
1500.00
2000.00
2500.00
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
ROE ROIC CROGI CROIAGI CFROI Price TSR (RHS)
Source Credit Suisse HOLT 2 Oct 2012
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0
10
20
30
40
50
60
70
80
90
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
NOPAT Operating Invested Capital ROIC (RHS)
Case Study: NOKIAROIC why so volatile?
Invested capital is the problem
Source Credit Suisse HOLT 2 Oct 2012
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Case Study: NOKIAROIC why so volatile?
Current assets declined from 2000 to 2004 while current liabilities
remained relatively unchanged. Assets increased significantly from 2006
without a proportional increase in current liabilities.
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Plant (Net ) Current Ass ets Current Liabilities Other Long Term Assets
Source Credit Suisse HOLT 2 Oct 2012
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CLARITY IS CONFIDENCE HOLT
0
5
10
15
20
25
30
35
0
10,000
20,000
30,000
40,000
50,000
60,000
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Working Capital Gross Fixed Assets Gross Investment Gross Cash Flow (RHS) CFROI (RHS)
Case Study: NOKIAROIC why so volatile?
0
10
20
30
40
50
60
70
80
90
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
NOPAT Operating Invested Capital ROIC (RHS)
Source Credit Suisse HOLT 2 Oct 2012
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Case Study: NOKIAthrough the CFROI lens
Source Credit Suisse HOLT 2 Oct 2012
d l h h d h h d l d
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Case Study: WPP plchigh returns and growth have not delivered
Source Credit Suisse HOLT 2 Oct 2012
C S d SCO l S l d l b k h i d O C
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Case Study: TESCO plcSale and leaseback has increased ROIC
Source Credit Suisse HOLT 2 Oct 2012
Th Id l P f M t i
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The Ideal Performance Metric
Question ROE ROIC CROGI CROIGI CFROI
Old Assets/New
Assets
No No Yes Yes Yes
Asset Life No No No No Yes
Inflation No No No Yes Yes
Accounting
Distortions No No Partial Partial Yes
C l i
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Conclusions
Return measures are essential to our understanding of companies
They can be volatile which makes forecasting difficult and uncertain
Mean reversion happens
Most important of all
Returns are not a measure of either absolute or relative value. You need to know what you are measuring
You need to know what your measure is telling you
Disclosure and Notice
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Disclosure and NoticeThis material has been prepared by individual traders or sales personnel of Credit Suisse Securities (USA) LLC ("Credit Suisse") and not by the Credit Suisse researchdepartment. It is provided for informational purposes, is intended for your use only and does not constitute an invitation or offer to subscribe for or purchase any of the products or
services mentioned. It is intended only to provide observations and views of individual traders or sales personnel, which may be different from, or inconsistent with, theobservations and views of Credit Suisse research department analysts, other Credit Suisse traders or sales personnel, or the proprietary positions of Credit Suisse. Observationsand views expressed herein may be changed by the trader or sales personnel at any time without prior notice. Past performance should not be taken as an indication or guarantee
of future performance, and no representation or warranty, expressed or implied is made regarding future performance. The information set forth above has been obtained from orbased upon sources believed to be reliable, but Credit Suisse does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out
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Backtested, hypothetical or simulated performance results have inherent limitations. Simulated results are achieved by the retroactive application of a backtested model itselfdesigned with the benefit of hindsight. The backtesting of performance differs from the actual account performance because the investment strategy may be adjusted at any time,for any reason and can continue to be changed until desired or better performance results are achieved. Alternative modeling techniques or assumptions might produce
significantly different results and prove to be more appropriate. Past hypothetical backtest results are neither an indicator nor a guarantee of future returns. Actual results will varyfrom the analysis.
The HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations,collectively called the HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates)are systematically translated into a number of default variables and incorporated into the algorithms available in the HOLT valuation model. The source financial statement, pricing,
and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firmperformance. These adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The
default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables toproduce alternative scenarios, any of which could occur. The HOLT methodology does not assign a price target to a security. The default scenario that is produced by the HOLTvaluation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may a lso change. The default variables may also beadjusted to produce alternative warranted prices, any of which could occur. Additional information about the HOLT methodology is available on request.
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