CHAPTER 1 P2

22問 • 1年前

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Other acceptable sources of information include

1. news article 2. reports from industry organization 3. reports from regulatory agencies 4. industry researches done by independent firms such as Nielsen or Euromonitor

Red flags that may indicate aggresive accounting include: (PERMMEHEMH)

1. Poor quality of accounting disclosure 2. existence of related-party transactions 3. reported disputes and or changes in auditors 4. material non audit services performed by audit firm 5. management and/or directors’ compensation tied to profitability or stock price. 6. economic, industry, or company-specific pressures on profitability 7. high management turnover 8. excessive pressure on company personnel to make revenue 9. management pressure to meet debt covenants 10. history of securities law violation

Forecasting financial performance can be looked at two lenses:

1. macro-perspective (viewing economic environment and industry) 2. micro-perspective (firms financial and operating characteristics)

Two approaches of forecasting

1. top-down forecasting 2. bottom-up forecasting

Starts from international or national macroeconimic projection.

Top-down forecasting

Common variables in topdown forecasting (GIFIC)

1. GDP forecast 2. consumption forecasts 3. inflation projections 4. foreign exhange currency rates 5. industry sales and market shares

Forecast starts from the lower levels of the firm and is completed as it captures what will happen to the company based on the inputs of its segments/units.

bottom up forecasting

Are considered in the forecasting process in order to make valuation approximate the true reality of the firm.

qualitative factors

Forecasting should be done comprehensively and should include:

1. earnings 2. cash flow 3. balance sheet forecast

Two common models in selecting the right valuation model

1. discounted cash flow model 2. comparable company analysis

Two aspects to consider in preparing valuation model

1. sensitivity model 2. scenario modelling

It is a common methodology in valuation exercises wherein multiple analyses are done to understand in an input or variable will affect the outcome.

sensitivity analysis

Assumption commonly used as an input for sensitivity analysis (SDG)

1. sales growth 2. gross margin rates 3. discount rates

For firm-specific issues that affect firm value that should be adjusted by analysis.

scenario modelling

Scenario modelling include: (CAI)

1. control premium 2. absence of marketability discounts 3. illiquidity

Refers to additional value considered in a stock investment if acquiring it will give controlling power to the investor.

control premium

Means that the stock cannot be easily sold as there is no ready market for it.

lack of marketibility discount

Should be considered when the price of particular shares has less depth or generally considered less liquid compared to other active publicly traded share.

illiquidity discounts

Can also be considered if an investor will sell large portion of stock that is significant compared to the trading volume of the stock.

illiquidity discounts

The analysts and investors use the results to provide recommendations or make decisions that suits their investment objective

applying valuation

Key principles in valuation (6) (TCMTTL)

1. time specific 2. cash flows 3. market 4. tangibles 5. transferrability 6. liquidity

Refers to the possible range of values where the real firm value lies

uncertainty

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Charles Jaojao · 26問 · 1年前

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