本学期资料 财务报表 Chpter Notes Chp013

1、Chapter 13,The Analysis of Growth and Sustainable Earnings,13-2,The Analysis of Growth and Sustainable Earnings,Chapter 12 laid out the,analysis of profitability,Link to Previous Chapter,LINKS,This chapter analyzes growth,This Chapter,Part Three of the book applies the,analysis of profitability and,

2、growth to forecasting and,valuation,Link to Next Chapter,Link to Web Page,How are,sustainable,earnings,identified ?,What are the drivers of growth?,What is “growth” in a valuation context? What is a growth company?,Explore the web page,How does growth affect P/E and P/B ratios?,What You Will Learn f

3、rom this Chapter,Why growth analysis focuses on residual earnings growth and abnormal earnings growth, rather than earnings growth What a growth firm is What constitutes sustainable earnings What is meant by transitory earnings How to analyze sustainable profitability How sustainable earnings and gr

4、owth analysis help answer the question of whether a firm has durable competitive advantage What drives growth of the common shareholders investment How P/E and P/B ratios relate to each other,13-3,The Big Picture for this Chapter,Valuation is based on forecasting residual earnings and residual earni

5、ngs growth So, what drives growth? Understand what growth is, then identify the drivers of growth Understand that sustainable earnings is the base from which growth can take place, so growth analysis starts with the identification of sustainable earnings,13-4,What Is a Growth Company and How Is It V

6、alued?,Growth in sales? Growth is assets? Growth in equity? Growth in earnings? Does a high P/E ratio indicate a growth company? Does a high P/B ratio indicate a growth company?,13-5,Remember the Caveat: Beware of Paying Too Much for Growth(Chapters 5, 6, and 7),Firms can grow earnings, but not crea

7、te value Earnings growth generated by investment Earnings growth generated by the accounting Value-added growth: Think of growth in residual earnings and abnormal earnings growth A reminder: abnormal earnings growth (AEG) is equal to growth in residual earnings (RE),13-6,13-7,A Growth Company? Gener

8、al Electric Corp.: 1993-2000,13-8,A Growth Company? General Electric Again.: 2001-2010,13-9,Is Nike a Growth Firm?,13-10,The Base for Growth: Sustainable Earnings,Sustainable earnings are earnings that can be repeated (sustained) in the future and which can grow. Otherwise called Core Earnings Persi

9、stent Earnings Unsustainable earnings are otherwise called Unusual Items Transitory Earnings,Cutting to the Core: Core Earnings (or Sustainable Earnings),1. Distinguish core operating income from unusual (transitory) income: Operating Income = Core OI + Unusual items 2. Distinguish core income from

10、sales from other core operating income: Operating Income = Core OI from Sales + Core Other OI + Unusual items,13-11,13-12,Reformulating Income Statements to Identify Core and Unusual Items,Reformulated Operating Income Statement: Core and Unusual Items,Identifying Sustainable Earnings: Items to Cons

11、ider,Deferred (unearned) revenue Restructuring charges, asset impairments, special charges Research and development Advertising and promotion Pension expense Changes in estimates Realized gains and losses: Cherry Picking Unrealized gains and losses on equity investments Unrealized gains and losses f

12、rom fair value accounting Income taxes “Other” income,13-13,Watch Deferred Revenue,Firms may defer revenue into a “cookie jar” and then dip into the cookie jar later Microsoft, 2008-2010 (millions): 2010 2009 2008 Unearned revenue $29,374 $24,409 $24,532 Recognition of (28,813) (25,426) (21,944) une

13、arned revenue,13-14,Watch for Bleed Back of Restructuring and Merger Charges,Did IBM create earnings with restructuring charges?,($billions),13-15,13-16,Analyze R 1963-2001,23,146,10,848,10,849,23,147,13-48,Median P/B for E/P Portfolios: 1968-85,13-49,Median E/P for P/B Portfolios: 1968-85,13-50,Fil

14、l Out the Cells(this is not TIC-TAC-TOE),High,High,Normal,Low,Normal,Low,P/E,P/B,Which cell do growth firms fall in ?,A,B,C,D,E,F,G,H,I,13-51,The Solution,High,High,Normal,Low,Normal,Low,P/E,P/B,RE = Expected future residual earnings RE0 = Current residual earnings,RERE0,RE00,RERE0,RE=RE0,RE0=0,RE=R

15、E0,RERE0,RE00,RERE0,(RE0),(RE=0),(RE0),RE=RE0,RE00,RE00,RE00,RE00,RERE0,RERE0,13-52,13-53,What is a Growth Stock?,P/E indicates growth in RE but this could be from a very low base: Firms in cell C can be high P/E firms Trailing P/E reflects growth and transitory earnings. If earnings are temporarily

16、 low, P/E will be high The Molodovsky Effect: Cells B and H are pure Molodovsky effects Cells A, C, G and I are mixed growth and Molodovsky effects,13-54,P/B is not Growth,P/B is often said to indicate a growth stock But. A firm can have a high P/B but zero growth (Cell D) A firm can have a high P/B

17、 and negative growth (Cell G) A firm can have a low P/B and positive growth (Cell C) There is much confusion around the notions of value vs. growth in investing,13-55,Accounting Quality Watch,Deferred revenue Firms can defer too much earnings to the future and thus create too much earnings growth. C

18、onversely, firms can defer too little earnings and so report unsustainable earnings currently. Restructuring charges Firms can make excessive restructuring charges in one year and bleed them back to earnings in future years, giving the appearance of growth. FASB Statement 146 now limits the practice

19、. Selling, general and SG&A is a large, aggregated number that administrate expense covers a multiple of sins. Penetrate its composition. Gains and losses on These are often hidden in SG&A expense, asset sales but are not a part of the core business. R&D and advertising Firms can increase earnings by temporarily reducing R&D and advertising expenditures. This not only inflates current earnings but damages future earnings that the expenditures would otherwise produce. (continued),13-56,Accounting Quality Watch (cont.),Pension acco