财务报表分析与证券估值-英文-(16)课件

ChapterSixteenMcGraw-Hill/IrwinCopyright©2013byTheMcGraw-HillCompanies,Inc.Allrightsreserved.ChapterSixteenMcGraw-Hill/IrwChapter16Preparedby:StephenH.Penman–ColumbiaUniversityWithcontributionsbyNirYehuda–NorthwesternUniversityMingcherngDeng–UniversityofMinnesotaPeterD.EastonandGregoryA.Sommers–NotreDameandSouthernMethodistUniversitiesLuisPalencia–UniversityofNavarra,IESEBusinessSchool16-2Chapter16Preparedby:StephenWhatYouWillLearnfromthisChapterHowforecastingisamatteroffinancialstatementanalysisforthefutureHowfinancialstatementdriverstranslateeconomicfactorsintoavaluationHowtoidentifykeydriversHowtoconductfull-informationproformaanalysisThe15stepsinproformaanalysisThesevenstepsinvolvedinforecastingresidualoperatingincomeandabnormaloperatingincomegrowthHowmergersandacquisitionsareevaluatedHowproformaanalysisisusedasatoolinstrategyanalysis16-3WhatYouWillLearnfromthisTheBigPictureforthisChapterProformaanalysisisthetooltoaddspeculativeinformationtothesimplevaluationsofChapter15ProformaanalysisinvolvesforecastingthefuturefinancialstatementsThefuturefinancialstatementsareforecastedbythesamedriversofourfinancialstatementanalysisSalesgrowthOperatingprofitmarginAssetturnoversThesedriversdriveresidualoperatingincome16-4TheBigPictureforthisChaptAReminder:

TheStepsofFundamentalAnalysisKnowingtheBusiness·TheProducts·TheKnowledgeBase·TheCompetition·TheRegulatoryConstraintsStrategy1AnalyzingInformation·InFinancialStatements·OutsideofFinancialStatements2ForecastingPayoffs·MeasuringValueAdded·ForecastingValueAdded3ConvertForecaststoaValuation4TradingontheValuationOutsideInvestorCompareValuewithPricetoBUY,SELLorHOLDInsideInvestorCompareValuewithCosttoACCEPTorREJECTStrategy5·TheManagement16-5AReminder:

TheStepsofFundaReviewofChapter1-KnowingtheBusiness:

KnowtheFirm’sProductsTypeofproductsConsumerdemandfortheproductPriceelasticityofdemandfortheproductSubstitutesfortheproduct.Isitdifferentiated?Onprice?Onquality?BrandnameassociationoftheproductPatentprotectionfortheproduct16-6ReviewofChapter1-KnowingKnowingtheBusiness:

KnowtheTechnologyProductionprocessMarketingprocessDistributionchannelsSuppliernetworkCoststructureEconomiesofscale16-7KnowingtheBusiness:

KnowtheKnowingtheBusiness:

KnowtheFirm’sKnowledgeBaseDirectionandpaceoftechnologicalchangeandthefirm’sgraspofitResearchanddevelopmentprogramsTie-intoinformationnetworksManagerialtalentAbilitytoinnovateinproductdevelopmentAbilitytoinnovateinproductiontechnologyEconomiesfromlearning16-8KnowingtheBusiness:

KnowtheKnowingtheBusiness:

KnowtheCompetitionConcentrationintheindustry,thenumberoffirmsandtheirsizesBarrierstoentryintheindustryandthelikelihoodofnewentrantsandsubstituteproductsThefirm’spositionintheindustry.Isitthefirstmoverorafollowerintheindustry?Doesithaveacostadvantage?Competitivenessofsuppliers.Dosuppliershavemarketpower?Dolaborunionshavepower?Capacityintheindustry?Isthereexcesscapacityorundercapacity?Relationshipsandallianceswithotherfirms16-9KnowingtheBusiness:

KnowtheKnowingtheBusiness:

KnowtheManagementWhatismanagement’strackrecord?Ismanagemententrepreneurial?Doesmanagementfocusonshareholders’ortheirowninterests?Dostockcompensationplansserveshareholders’interests?Whatistheethicalcharterunderwhichthefirmoperates?Howstrongarethecorporategovernancemechanisms16-10KnowingtheBusiness:

KnowtheKnowingtheBusiness:

KnowthePolitical,LegalandRegulatoryEnvironmentThefirm’spoliticalinfluenceLegalconstraintsonthefirmincludingantitrustlaw,consumerlaw,laborlawandenvironmentallawRegulatoryconstraintsonthefirmincludingproductandpriceregulationsTaxationofthebusiness16-11KnowingtheBusiness:

KnowthFinancialStatementAnalysis:

TheLensontheBusinessEconomicFactorsTheFilterofFinancialStatementAnalysisEconomicFactorsInterpretedasReOIDrivers16-12FinancialStatementAnalysis:

FourPointsofFocusFocusonResidualOperatingIncomeanditsDriversFocusonChangeFocusonKeyDriversFocusonChoiceversusConditions16-13FourPointsofFocusFocusonRFocusonResidualOperatingIncome(ReOI)Twodrivers:1.2.ThedriverscanbecapturedinoneexpressionforReOI:ToaddReOI(andAOIGandvalue):growsalesandincreaseCoreSalesPMwithlowerAssetTurnover16-14FocusonResidualOperatingInFocusonChangeEstablishTypicalDriverPatternforIndustryModifyTypicalDriverPatternforForecastedChangesfortheIndustryandtheEconomyDiscoverHowaFirm’sDriverPatternwillbeDifferentfromtheTypicalPatternRemember16-15FocusonChangeEstablishTypicDriverPatterns:

CoreRNOA(AllNYSEandAMEXfirms,1965–99)TherateofconvergencetowardscommonlevelisreferredtoastheFadeRateWhateconomicfactorsdrivefaderates?CoreRNOAYearAhead16-16DriverPatterns:

CoreRNOACorDriverPatterns:

CoreOtherIncome/NOACoreOtherIncome/NOAYearAhead16-17DriverPatterns:

CoreOtherIDriverPatterns:

UnusualItems/NOAUnusualItems/NOAYearAhead16-18DriverPatterns:

UnusualItemDriverChangePatterns:

SalesGrowthRatesSalesGrowthRateYearAhead16-19DriverChangePatterns:

SalesDriverChangePatterns:

ChangeinCoreSalesPMYearAheadChangeinCoreSalesPM16-20DriverChangePatterns:

ChangeDriverChangePatterns:

ChangeinATOYearAheadChangeinATO16-21DriverChangePatterns:

ChangeForecastingHowaFirm’sDriverswillbe

DifferentfromtheTypicalPatternThetensionbetweentheforcesofcompetitionandthefirm’sresponsestothoseforces:challengeandcounterchallengeFirmschallengeotherfirms:ProductpricereductionProductinnovationLowerproductioncostsImitationofsuccessfulfirmsEnteringindustrieswherefirmsareearningabnormalprofitsFirmscounterchallenge:BrandcreationPatentprotectionManagingconsumerexpectationsAlliancesandagreementswithcompetitors,suppliersandfirmswithrelatedtechnologyExploitingfirst-moveradvantagesMergersCreatingsuperiorproductionandmarketingtechnologiesCreatingeconomiesofscalethataredifficulttoreplicateCreatingatechnologicalstandardthatconsumersandotherfirmsmusttieintoGovernmentprotection16-22ForecastingHowaFirm’sDriveFocusonKeyDriversSomefirmshaveoneortwodriversthatarekeytodrivingReOI.Analystsfocusonthesekeydrivers16-23FocusonKeyDriversSomefirmsDriverHistoryforaBrandNameCompany:Nike,Inc.16-24DriverHistoryforaBrandNaDriverHistoryforaBrandNameCompany:Coca-Cola16-25DriverHistoryforaBrandNaFullInformationForecastingForecastalleconomicfactorsandthefullsetofReOIdriversExpressforecastsinasetofproformafinancialstatementsAnExamplewithPPEInc.follows16-26FullInformationForecastingFoPPE,Inc.:

InitializingFinancialStatementsRequiredreturnforoperations=10%Requiredreturnfordebt=4%16-27PPE,Inc.:

InitializingFinanForecastingforPPEInc.Theforecasts:Salesareforecastedtogrowat5%ForecastedCorePMis7.85%ForecastedATOis1.762Withthesethreeforecastswecanvaluethefirm16-28ForecastingforPPEInc.ThefoPPEInc.:

TheProFormaforOperatingActivities16-29PPEInc.:

TheProFormaforOPPE,Inc.:

TheResidualincomeValuation16-30PPE,Inc.:

TheResidualincomPPEInc.

TheAOIGValuation16-31PPEInc.

TheAOIGValuation16-PPEInc.

TheFreeCashFlowValuationfromtheProForma16-32PPEInc.

TheFreeCashFlowVaFillingouttheProFormaFinancialStatementsDividendforecast:Payoutwillbe40%ofEarningsBorrowingcostforecast:Sameaspresent(4%)16-33FillingouttheProFormaFinaFull-InformationForecasting:Nike16-34Full-InformationForecasting:Full-InformationForecasting:Nike(cont.)16-35Full-InformationForecasting:Full-InformationForecasting:Nike(cont.)16-36Full-InformationForecasting:AForecastingTemplateForecastsalesForecastATOandcalculateNOANOA=sales/ATORevisesalesforecastforassetconstraintsForecastCorePMandcalculateCoreOICoreOI=SalesxCorePMForecastOtherCoreOIandtotalCoreOICoreOI=CoreOIfromsales+OtherCoreOIForecastunusualoperatingitemsCalculateReOIandAOIGOit=CoreOIt+UItReOIt=OIt-(F-1)NOAt-1AOIGt=

ΔReOItCalculateFreeCashFlow16-37AForecastingTemplateForecastAForecastingTemplate(cont.)ForecastnetdividendpayoutCalculatefinancialexpenses(orincome)UpdatenetfinancingpositionCalculatecomprehensiveearningsCalculatecommonstockholders’equityAdjustthevaluationforstockoptionoverhang(Chapter13)AdjustforanyvaluefornoncontrollinginterestsSteps1-6andstep9and10requireforecastingAllotherforecastsarecalculationsfromforecastedamountsusingaccountingrelationsOnlysteps1-7arenecessaryforvaluation(withoutstockoptions)16-38AForecastingTemplate(cont.)CheckingProFormaAnalysisMakesureCSEreconciliationsinStep13agreeCheckcommonsizeanalysisagainstindustrynorms.Aredifferencesreasonable?Watchforfinancialassetbuildup.Whatwillthefirmdowiththebuild-up?16-39CheckingProFormaAnalysisMakFeaturesoftheOIValuationApproachItisefficient:forecastfivefactorsSalesCorePMATOOtherCoreOIUnusualItemsFocusesonthepartofthebusinessthataddsvalue:theoperationsDividendsareirrelevantFinancingisirrelevantZeroNPV(zeroReOI)investmentsdon’taffectthevaluationValue-generatinginvestmentsareidentifiedAvoidsproblemsofthediscountrate changingasleveragechanges16-40FeaturesoftheOIValuationAMergersandAcquisitionsInvolvingShareIssuesMergersandAcquisitionsofteninvolveshareissuesResidualearningsvaluationcannotbedonebyforecastingper-shareamountsifsharesoutstandingarelikelytochangeAlwayscarryoutresidualearningsvaluationsonadollarbasis,thendividebycurrentsharesoutstandingAbnormalEarningsGrowth(AEG)valuationcanbecarriedoutbyforecastingper-shareearningsanddividendsHowever,mustthenworkonaleveredbasis(requiringchangesinthecostofequitycapital)Besttoworkwithoperationsonadollarbasis16-41MergersandAcquisitionsInvolValuationwithanAnticipatedAcquisition:

DealingwithValueReceivedintheExchangeRatio16-42ValuationwithanAnticipatedFinancialStatementIndicators1.CurrentRNOAdifferentfromthepast2.ComponentsofRNOAdifferentfromthe pastAnalyzethedeterminantsofthecurrentΔRNOA:

ΔinCorePMisparticularlyimportant3.RNOAdifferentfromindustrymeanRNOAstendtoreverttowardsindustryaverages16-43FinancialStatementIndicatorsFinancialStatementIndicators(cont.)4.ComponentsofRNOAdifferentfromindustrymean PMcomponents:Costofsales/SalesAdvertising/SalesG&Aexpenses/SalesR&D/SalesATOcomponentsInventories/SalesAccountsreceivables/SalesDoubtfuldebts/SalesPPE/Sales…5.ChangesinRNOAcomponentsdifferentfromindustry mean6.Changesincapitalexpendituresdifferentfromindustrymean

CombineinvestigationwithQualityofEarningsAnalysis(Chapter17).16-44FinancialStatementIndicatorsIndicatorsOutsideFinancialStatementsFirmspecificindicatorsNon-workingassetsOrderbacklogPer-unitsalespricesR&DsuccessFirms’investmentplansChangeinlaborforceManagementdiscussionandanalysisInsidertradingContingentliabilities(seefootnotes)16-45IndicatorsOutsideFinancialSRedFlagIndicatorsSlowersalesgrowthDeclinesinorderbacklogIncreasingAccountsReceivable/SalesIncreasingInventory/SalesDeteriorationinGrossmargin/SalesIncreasingSellingandAdministrativeExpenses/SalesLoweffectivetaxratesLargenon-recurringitemsIncreasesindilutivesecurities:executivestockoptionsBuildupoffinancialassets16-46RedFlagIndicatorsSlowersaleBusinessStrategyandProFormaAnalysisThesameapparatusservesstrategyanalysisFivestepsoffundamentalanalysisarethefivestepsofstrategyanalysisThefocus:SalesgrowthOperatingprofitmarginsAssetturnoversProformafinancialstatementanalysisarticulatesstrategyBewareofunarticulatedstrategyfads16-47BusinessStrategyandProFormScenarioAnalysisRe-runtheproformafordifferentscenariosandestimatevalueunderdifferentscenarios.Forexample,---Alternativesalesgrowthforecasts---Alternativeprofitmarginandprofitmarginfadepatterns---AlternativeassetturnoversRe-runwithdifferentrequiredreturns16-48ScenarioAnalysisRe-runtheprRiskAnalysisUsescenarioanalysistomodelyouruncertaintyChapter19takeproformaanalysistotheanalysisofrisk16-49RiskAnalysisUsescenarioanalChapterSixteenMcGraw-Hill/IrwinCopyright©2013byTheMcGraw-HillCompanies,Inc.Allrightsreserved.ChapterSixteenMcGraw-Hill/IrwChapter16Preparedby:StephenH.Penman–ColumbiaUniversityWithcontributionsbyNirYehuda–NorthwesternUniversityMingcherngDeng–UniversityofMinnesotaPeterD.EastonandGregoryA.Sommers–NotreDameandSouthernMethodistUniversitiesLuisPalencia–UniversityofNavarra,IESEBusinessSchool16-51Chapter16Preparedby:StephenWhatYouWillLearnfromthisChapterHowforecastingisamatteroffinancialstatementanalysisforthefutureHowfinancialstatementdriverstranslateeconomicfactorsintoavaluationHowtoidentifykeydriversHowtoconductfull-informationproformaanalysisThe15stepsinproformaanalysisThesevenstepsinvolvedinforecastingresidualoperatingincomeandabnormaloperatingincomegrowthHowmergersandacquisitionsareevaluatedHowproformaanalysisisusedasatoolinstrategyanalysis16-52WhatYouWillLearnfromthisTheBigPictureforthisChapterProformaanalysisisthetooltoaddspeculativeinformationtothesimplevaluationsofChapter15ProformaanalysisinvolvesforecastingthefuturefinancialstatementsThefuturefinancialstatementsareforecastedbythesamedriversofourfinancialstatementanalysisSalesgrowthOperatingprofitmarginAssetturnoversThesedriversdriveresidualoperatingincome16-53TheBigPictureforthisChaptAReminder:

TheStepsofFundamentalAnalysisKnowingtheBusiness·TheProducts·TheKnowledgeBase·TheCompetition·TheRegulatoryConstraintsStrategy1AnalyzingInformation·InFinancialStatements·OutsideofFinancialStatements2ForecastingPayoffs·MeasuringValueAdded·ForecastingValueAdded3ConvertForecaststoaValuation4TradingontheValuationOutsideInvestorCompareValuewithPricetoBUY,SELLorHOLDInsideInvestorCompareValuewithCosttoACCEPTorREJECTStrategy5·TheManagement16-54AReminder:

TheStepsofFundaReviewofChapter1-KnowingtheBusiness:

KnowtheFirm’sProductsTypeofproductsConsumerdemandfortheproductPriceelasticityofdemandfortheproductSubstitutesfortheproduct.Isitdifferentiated?Onprice?Onquality?BrandnameassociationoftheproductPatentprotectionfortheproduct16-55ReviewofChapter1-KnowingKnowingtheBusiness:

KnowtheTechnologyProductionprocessMarketingprocessDistributionchannelsSuppliernetworkCoststructureEconomiesofscale16-56KnowingtheBusiness:

KnowtheKnowingtheBusiness:

KnowtheFirm’sKnowledgeBaseDirectionandpaceoftechnologicalchangeandthefirm’sgraspofitResearchanddevelopmentprogramsTie-intoinformationnetworksManagerialtalentAbilitytoinnovateinproductdevelopmentAbilitytoinnovateinproductiontechnologyEconomiesfromlearning16-57KnowingtheBusiness:

KnowtheKnowingtheBusiness:

KnowtheCompetitionConcentrationintheindustry,thenumberoffirmsandtheirsizesBarrierstoentryintheindustryandthelikelihoodofnewentrantsandsubstituteproductsThefirm’spositionintheindustry.Isitthefirstmoverorafollowerintheindustry?Doesithaveacostadvantage?Competitivenessofsuppliers.Dosuppliershavemarketpower?Dolaborunionshavepower?Capacityintheindustry?Isthereexcesscapacityorundercapacity?Relationshipsandallianceswithotherfirms16-58KnowingtheBusiness:

KnowtheKnowingtheBusiness:

KnowtheManagementWhatismanagement’strackrecord?Ismanagemententrepreneurial?Doesmanagementfocusonshareholders’ortheirowninterests?Dostockcompensationplansserveshareholders’interests?Whatistheethicalcharterunderwhichthefirmoperates?Howstrongarethecorporategovernancemechanisms16-59KnowingtheBusiness:

KnowtheKnowingtheBusiness:

KnowthePolitical,LegalandRegulatoryEnvironmentThefirm’spoliticalinfluenceLegalconstraintsonthefirmincludingantitrustlaw,consumerlaw,laborlawandenvironmentallawRegulatoryconstraintsonthefirmincludingproductandpriceregulationsTaxationofthebusiness16-60KnowingtheBusiness:

KnowthFinancialStatementAnalysis:

TheLensontheBusinessEconomicFactorsTheFilterofFinancialStatementAnalysisEconomicFactorsInterpretedasReOIDrivers16-61FinancialStatementAnalysis:

FourPointsofFocusFocusonResidualOperatingIncomeanditsDriversFocusonChangeFocusonKeyDriversFocusonChoiceversusConditions16-62FourPointsofFocusFocusonRFocusonResidualOperatingIncome(ReOI)Twodrivers:1.2.ThedriverscanbecapturedinoneexpressionforReOI:ToaddReOI(andAOIGandvalue):growsalesandincreaseCoreSalesPMwithlowerAssetTurnover16-63FocusonResidualOperatingInFocusonChangeEstablishTypicalDriverPatternforIndustryModifyTypicalDriverPatternforForecastedChangesfortheIndustryandtheEconomyDiscoverHowaFirm’sDriverPatternwillbeDifferentfromtheTypicalPatternRemember16-64FocusonChangeEstablishTypicDriverPatterns:

CoreRNOA(AllNYSEandAMEXfirms,1965–99)TherateofconvergencetowardscommonlevelisreferredtoastheFadeRateWhateconomicfactorsdrivefaderates?CoreRNOAYearAhead16-65DriverPatterns:

CoreRNOACorDriverPatterns:

CoreOtherIncome/NOACoreOtherIncome/NOAYearAhead16-66DriverPatterns:

CoreOtherIDriverPatterns:

UnusualItems/NOAUnusualItems/NOAYearAhead16-67DriverPatterns:

UnusualItemDriverChangePatterns:

SalesGrowthRatesSalesGrowthRateYearAhead16-68DriverChangePatterns:

SalesDriverChangePatterns:

ChangeinCoreSalesPMYearAheadChangeinCoreSalesPM16-69DriverChangePatterns:

ChangeDriverChangePatterns:

ChangeinATOYearAheadChangeinATO16-70DriverChangePatterns:

ChangeForecastingHowaFirm’sDriverswillbe

DifferentfromtheTypicalPatternThetensionbetweentheforcesofcompetitionandthefirm’sresponsestothoseforces:challengeandcounterchallengeFirmschallengeotherfirms:ProductpricereductionProductinnovationLowerproductioncostsImitationofsuccessfulfirmsEnteringindustrieswherefirmsareearningabnormalprofitsFirmscounterchallenge:BrandcreationPatentprotectionManagingconsumerexpectationsAlliancesandagreementswithcompetitors,suppliersandfirmswithrelatedtechnologyExploitingfirst-moveradvantagesMergersCreatingsuperiorproductionandmarketingtechnologiesCreatingeconomiesofscalethataredifficulttoreplicateCreatingatechnologicalstandardthatconsumersandotherfirmsmusttieintoGovernmentprotection16-71ForecastingHowaFirm’sDriveFocusonKeyDriversSomefirmshaveoneortwodriversthatarekeytodrivingReOI.Analystsfocusonthesekeydrivers16-72FocusonKeyDriversSomefirmsDriverHistoryforaBrandNameCompany:Nike,Inc.16-73DriverHistoryforaBrandNaDriverHistoryforaBrandNameCompany:Coca-Cola16-74DriverHistoryforaBrandNaFullInformationForecastingForecastalleconomicfactorsandthefullsetofReOIdriversExpressforecastsinasetofproformafinancialstatementsAnExamplewithPPEInc.follows16-75FullInformationForecastingFoPPE,Inc.:

InitializingFinancialStatementsRequiredreturnforoperations=10%Requiredreturnfordebt=4%16-76PPE,Inc.:

InitializingFinanForecastingforPPEInc.Theforecasts:Salesareforecastedtogrowat5%ForecastedCorePMis7.85%ForecastedATOis1.762Withthesethreeforecastswecanvaluethefirm16-77ForecastingforPPEInc.ThefoPPEInc.:

TheProFormaforOperatingActivities16-78PPEInc.:

TheProFormaforOPPE,Inc.:

TheResidualincomeValuation16-79PPE,Inc.:

TheResidualincomPPEInc.

TheAOIGValuation16-80PPEInc.

TheAOIGValuation16-PPEInc.

TheFreeCashFlowValuationfromtheProForma16-81PPEInc.

TheFreeCashFlowVaFillingouttheProFormaFinancialStatementsDividendforecast:Payoutwillbe40%ofEarningsBorrowingcostforecast:Sameaspresent(4%)16-82FillingouttheProFormaFinaFull-InformationForecasting:Nike16-83Full-InformationForecasting:Full-InformationForecasting:Nike(cont.)16-84Full-InformationForecasting:Full-InformationForecasting:Nike(cont.)16-85Full-InformationForecasting:AForecastingTemplateForecastsalesForecastATOandcalculateNOANOA=sales/ATORevisesalesforecastforassetconstraintsForecastCorePMandcalculateCoreOICoreOI=SalesxCorePMForecastOtherCoreOIandtotalCoreOICoreOI=CoreOIfromsales+OtherCoreOIForecastunusualoperatingitemsCalculateReOIandAOIGOit=CoreOIt+UItReOIt=OIt-(F-1)NOAt-1AOIGt=

ΔReOItCalculateFreeCashFlow16-86AForecastingTemplateForecastAForecastingTemplate(cont.)ForecastnetdividendpayoutCalculatefinancialexpenses(orincome)UpdatenetfinancingpositionCalculatecomprehensiveearningsCalculatecommonstockholders’equityAdjustthevaluationforstockoptionoverhang(Chapter13)AdjustforanyvaluefornoncontrollinginterestsSteps1-6andstep9and10requireforecastingAllotherforecastsarecalculationsfromforecastedamountsusingaccountingrelationsOnlysteps1-7arenecessaryforvaluation(withoutstockoptions)16-87AForecastingTemplate(cont.)CheckingProFormaAnalysisMakesureCSEreconciliationsinStep13agreeCheckcommonsizeanalysisagainstindustrynorms.Aredifferencesreasonable?Watchforfinancialassetbuildup.Whatwillthefirmdowiththebuild-up?16-88CheckingProFormaAnalysisMakFeaturesoftheOIValuationApproachItisefficient:forecastfivefactorsSalesCorePMATOOtherCoreOIUnusualItemsFocusesonthepartofthebusinessthataddsvalue:theoperationsDividendsareirrelevantFinancingisirrelevantZeroNPV(zeroReOI)investmentsdon’taffectthevaluationValue-generatinginvestmentsareidentifiedAvoidsproblemsofthediscountrate changingasleveragechanges16-89FeaturesoftheOIValuationAMergersandAcquisitionsInvolvingShareIssuesMergersandAcquisitionsofteninvolveshareissuesResidualearningsvaluationcannotbedonebyforecastingper-shareamountsifsharesoutstandingarelikelytochangeAlwayscarryoutresidualearningsvaluationsonadollarbasis,thendividebycurrentsharesoutstandingAbnormalEarningsGrowth(AEG)valuationcanbecarriedoutbyforecastingper-shareearningsanddividendsHowever,mustthenworkonaleveredbasis(r