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54 Cards in this Set
- Front
- Back
Porter's Five Forces |
1- Threat of new entrants 2- Threat of substitutes 3- Bargaining power of buyers 4- Bargaining power of suppliers 5- Rivalry among existing competitors Porter loves BECSS |
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Holding period return |
r = ((P1-P0) +CF) / P0 |
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Required return |
minimum expected return an investor requires given an asset's characteristics |
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Internal Rate of Return (IRR) |
equates discounted cash flow to current price |
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Equity Risk Premium |
r = RFR + beta * ERP |
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Gordon Growth Model ERP |
1-yr forecasted dividend yield on market index + consensus long-term earnings growth rate - long-term government bond yield |
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CAPM required equity return |
r = RFR + beta * ERP |
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Multifactor Model equity return |
RFR + risk prem 1 + risk prem 2 +... |
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Fama-French equity return |
RFR + betamkt(Rmkt-RFR) + betasmb(Rsm-Rbig) + betahml(Rval-Rgro) |
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Pastor Stambaugh equity return |
Add in liquidity factor to Fama-French |
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Macroeconomic multifactor equity return |
uses factors associated with economic variables |
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Build up equity return |
r = RF + ERP + size prem + specific-co prem |
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Blume adjustment to beta |
adjusted beta = 2/3 * raw beta + 1/3 * 1 |
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WACC |
MVd/MVt *Kd*(1-T) + MVe/MVt*Ke
Discount FCFE at required return on equity |
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Strategy styles by industry |
Adaptive - less predictable, less malleable Classical - more predictable, less malleable Shaping - less predictable, more malleable Visionary - more predictable, more malleable |
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DDM Method useful |
Dividend policy is related to earnings. Perspective of minority shareholder. |
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FCF method useful |
Unstable dividend. FCF related to profitability. Controlling shareholder perspective. |
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RI method useful |
Lack of dividend history and expected FCF is negative |
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GGM for dividends |
V0 = D1/(r-g)
assumes perpetual dividend growth rate appropriate for mature firms very sensitive to changes in r and g |
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PV of Growth Opportunities |
V0 = E1/r + PVGO |
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2 Stage Growth Model |
Use GGM for terminal value after high growth period Calculate high growth period dividends Discount to time 0 (D0*(1+gs)^n*(1+gl)) / ((1+r)^n*(r-gl)) |
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H model |
V0 = ((D0*(1+glt))/(r-glt)) + ((D0*H*(gst-glt))/(r-gl) |
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Sustainable growth rate |
retention rate * ROE or ((net income - dividends)/net income) * (net income/sales) * (sales/total assets) * (total assets/stockholders equity) |
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required return w/ GGM model |
r = D1/P0 + g |
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FCFF |
FCFF = NI + Dep + Int *(1-t) - FCInv - WCInv FCFF = EBITDA*(1-t) + Dep*t -FCInv - WCInv FCFF = EBIT*(1-t) + Dep - FCInv - WCinv FCFF = CFO + Int*(1-t) -FCInv |
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FCFE |
FCFE = FCFF - Int*(1-t) + net borrowing FCFE = NI + NCC - FCInv - WCInv + net borrowing FCFE = CFO - FCInv + net borrowing FCFE = NI - (1-DR)*(FCInv-Dep) - (1-DR)*WCInv |
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Net borrowing |
Debt Ratio*(FCInv-Dep) + DR(WCInv) |
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Single Stage FCFF model |
V0 = FCFF1/ (WACC-g) |
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Single Stage FCFE model |
V0 = FCFE1/ (r-g) |
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2 Stage FCFF/FCFE model |
Calculate FCF high growth
Use single stage model for terminal value Discount with WACC for FCFF / r for FCFE |
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Justified leading P/E |
(1-retention rate) / (r-g) |
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Justified trailing P/E |
(1-retention rate)*(1+g) / (r-g) |
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Justified dividend yield |
D0/P0 = (r-g) / (1+g) |
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normalization methods |
Historical average EPS or Average ROE |
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Justified P/B ratio |
(ROE - g) / (r-g) |
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Justified P/S ratio |
(Profit Margin0*(1-retention rate)*(1+g)) / (r-g) |
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Dupont ROE Method |
(net income/sales) * (sales/total assets) * (total assets/equity) |
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Residual Income |
RI = (ROE - r) * Bt-1 RI - EPSt - (r*Bt-1) |
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Single stage RI model |
V0 = (B0 + (ROE-r)*B0) / (r-g) |
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Multistage RI model |
V0 = B0 + PV of interim high-growth RI + PV of continuing RI PV of continuing RI using the single stage model |
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Economic Value Added |
EVA = NOPAT - DollarWACC |
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NOPAT |
Non operating profit after tax = EBIT * (1-t) |
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DLOC (discount for lack of control) |
1 - (1/(1+control prem)) |
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Total discount |
1 - ((1-DLOC)*(1-DLOM)) |
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DLOM (discount for lack of marketability) |
Varies with:
Impending IPO (lowers DLOM) Payment of dividends (lowers DLOM) Earlier, higher payments (lowers DLOM) Restrictions on selling stock (raises DLOM) Greater pool of buyers (lowers DLOM) Greater risk and value uncertainty (raises DLOM) |
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value of perpetual preferred shares |
Vp = D/r |
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justified P/CF |
V0 = FCFE0*(1+g)/(r-g) |
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PEG ratio |
(P/E ratio) / g |
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weighted harmonic mean |
1/ (sum wi/Xi) |
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Economic value added |
EVA = NOPAT - $WACC |
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Net operating profit after tax |
EBIT*(1-t) (sales-COGS-SGA-dep)*(1-t) |
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$WACC |
WACC*total capital |
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total capital |
long term debt + stockholders equity net working capital + net PPE |
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P/S |
share price / revenue per share |