Applied Equity Analysis: Stock Valuation Techniques for Wall Street Professionals / Edition 1

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Overview

Today's Most Comprehensive Practitioner's Guide to Modern Equity Analysis

Professional equity analysts must contend with a number of strong forces, each pulling in separate but equally relentless directions. Applied Equity Analysis ties these disparate elements into a seamless whole, and presents a clear, complete equity analysis picture.

Written from the working analyst's point of view, in a singularly candid style that is both thought provoking and illuminating, Applied Equity Analysis covers:

  • How to think, speak, and develop investment recommendations in the language of Wall Street
  • How competitive forces directly impact financial results and, in the process, drive stock valuation
  • How to use valuation methodologies designed to quantify the growth and earnings assumptions inherent in speculative stock prices

Applied Equity Analysis emphasizes techniques that work on a day-to-day basis, rather than traditional but often impractical academic approaches. By combining a solid discussion of finance and investment theory with techniques popular among today's buy- and sell-side analysts, it presents a picture of stock investment analysis that is analytically rigorous, aggressively uncompromising, and based on earnings the true driving force of Wall Street.

"The equity analyst's job is to present a position, supported by financial and non-financial evidence. Data unnecessary to the argument are, in a word, unnecessary. However, the analyst must understand all the data, relevant or not. The ultimate goal of the equity analyst is the exploitation of any difference between a stock's price and its value."
 From Chapter 1

Applied Equity Analysis is about understanding all the data. Written by former JP Morgan managing director James English an adjunct professor of finance at the Columbia University School of Business, honored by The Wall Street Journal for his stock analysis skills this innovative book treats valuation as a practical tool rather than a theoretical exercise. Its integrated approach shows you how to build straight-line connections between a firm's fundamental competitive situation and its stock performance, by combining an understanding of a firm's competitive strengths and weaknesses with accurate financial statement analysis to build a more complete model of a firm's future stock market performance

Combining a solid discussion of finance and investment theory with techniques frequently used by working buy- and sell-side analysts, Applied Equity Analysis discusses:

  • Specific valuation techniques for identifying stocks that are undervalued relative to their peers
  • Quantitative techniques to link a firm's projected future financial performance to its potential future valuation based upon the current trading patterns of comparable stocks
  • A hybrid valuation technique to mathematically calculate a stock's inherent growth expectations
  • A proven strategy for formulating and successfully presenting an investment recommendation
  • An entire chapter on the Stern Stewart EVATM system as an alternative and potentially useful way of decoding financial statement information
  • Relative and hybrid earnings-based valuation techniques that are more practical than cash-flow methods and frequently far superior

On today's Wall Street, equity analysts must focus on a firm's ability to produce returns that exceed capital costs, and then estimate the firm's future power to maintain and increase those returns. Let Applied Equity Analysis supply you with in-depth examples and explanations of Wall Street's most important equity analysis tools and give you a hands-on, real-world handbook for equity analysis in today's complex financial marketplace.

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Product Details

Meet the Author

James English is currently an adjunct assistant professor of finance at Columbia University School of Business. He spent twenty years with JP Morgan serving in many positions, including managing director of JP Morgan Capital, the firm's venture capital unit. In his over quarter-century career in finance, English practiced and become proficient in virtually every one of the field's subspecialties: commercial banking and credit analysis, corporate treasury and foreign exchange, capital markets, mergers & acquisitions, venture capital, and sell-side equity analysis.

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Table of Contents

Preface
Pt. 1 Getting Started
Ch. 1 A Day in the Life 3
Ch. 2 Fundamentals of Equity Valuation 21
Ch. 3 Strategy and Competition I: The Firm's External Environment 55
Ch. 4 Strategy and Competition II: The Firm's Internal Competitive Resources 83
Ch. 5 Fundamentals of Stock Behavior 101
Pt. 2 The Basic Tools
Ch. 6 Reading a Financial Statement: The Accuracy, Sustainability, and Predictability of Financial Information 127
Appendix 6-1 Gateway Financial Statements 146
Ch. 7 Reading a Financial Statement: the Composition of Returns 149
Appendix 7-1 Comparative Financial Analysis: Personal Computer Industry 169
Ch. 8 Reading a Financial Statement: Early-Stage Companies and Investment Capacity 171
Ch. 9 Reading a Financial Statement: Later-Stage Companies and the Transition to Maturity 185
Ch. 10 Economic Value Added: An Alternative to Traditional Analysis Techniques 199
Appendix 10-1 Gateway's Cost of Capital 227
Pt. 3 Financial Models
Ch. 11 Financial Modeling: Base Case Assumptions and Model Design 231
Appendix 11-1 Dell Computer Corporation Consolidated Statement of Income 251
Ch. 12 Financial Modeling: The Income Statement and Balance Sheet 259
Ch. 13 Financial Modeling: The Statement of Cash Flows 273
Pt. 4 Equity Valuation
Ch. 14 Valuation: Foundations and Fundamentals 289
Ch. 15 Combat Finance: Relative Methods and Companion Variable Models 305
Ch. 16 Hybrid Valuation Techniques 333
Ch. 17 The Quirky Price/Earnings Ratio 349
Ch. 18 Valuation of Speculative Stocks 361
Ch. 19 Equity Analysis and Business Combinations 375
Pt. 5 Getting It Down on Paper
Ch. 20 Financial Writing: Don't Bury the Lead 393
Bibliography 409
Index 415
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