CP 7: Capital Structure & Derivation of RAOCC.
A. Balance Sheet (last 5 years)
1. Capital Expenditures
a) Purposes and growth of CAPEX.
) CAPEX ROIIC.
c) ROIC versus RAOCC
2. Liquidity Analysis.
a) Cu
ent Ratio.
) Quick Ratio.
3. Capital Structure Analysis
a) Total $ Debt Book Value.
) Debt/Total Capital.
c) Debt/Equity.
d) Annual Interest Expense.
e) Debt Service Coverage Ratio.
f) Bond Rating.
g) Shares Authorized and Issued.
h) Book Value of Equity
CP 8: Derive ROIC, and calculate 5 year EVA.
1. Derivation of RAOCC
a) Cost of Equity
1) Use 3 Factor CAPM (if possible.)
2) Consistent use of RM , RF, (RM – RF)
3) Consistent derivation of Beta(s).
4) Consistent weighting for Equity.
) Cost of Debt.
1) Consistent Sources for Debt Tranches, Totals Outstanding, Coupon Rates.
2) Consistent Source for Corporate Tax Rate.
3) Consistent Weighting for Debt.
2. Derivation of ROIC.
a) NOPLAT for Cu
ent Year in Numerator from Income Statement.
) (Book Value of L.T. Debt + Book Value of Equity) for End of Prior Year in Denominator.
3. EVA last 5 years.
4. Trend in EVA.
CP 9: Relative valuation of company stock price
1. Valuation using P/E ratio analysis.
2. Valuation using PEG ratio analysis.
CP 10: DCF valuation of company stock price
1. No Growth Stock Price = Earnings Power Value (perpetuity model) = EPST+1/RE.
2. Alternative: No Growth Stock Price = NOPLAT / RAOCC + Excess Cash.
3. Growth Component of Stock Price = Future value creation = Investment * (ROIC – RAOCC) x competitive advantage period (number of years)/ RAOCC * (1 + RAOCC)
4. Gordon Constant Growth, Two Stage, Three Stage Growth Model.
Note: CP 9, CP 10, CP 12 will be the take home part of your final examination.
CP 11: Sometime during the semester, probably (hopefully) in October or November your company will announce its Third Quarter, 2020 (Q3:20) earnings, as well as the growth from Q3:19, and ‘guidance’ for revenues and earnings for the coming year.
Your job in CP 11 is to listen to or read the earnings announcement and report on the following items:
1. How did earnings compare to expectations? Did your company’s announced earnings beat, miss, or meet expectations? By how much? Why?
2. What was the guidance your company provided for future revenues and earnings?
CP 12: A one page cove
summary sheet recommending:
1. Whether to buy, sell, or hold your company’s stock
2. In bullet point format the reasons for your recommendation.
3. Your 1 year price target for your company’s stock.