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

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

by James English
     
 

ISBN-10: 0071360514

ISBN-13: 9780071360517

Pub. Date: 05/14/2001

Publisher: McGraw-Hill Professional Publishing

Applied Equity Analysis treats stock valuation as a practical, hands-on tool rather than a vague, theoretical exercise—and covers the entire valuation process from financial statement analysis through the final investment recommendation. Its integrated approach to valuation builds viable connections between a firm’s competitive situation and the ultimate

Overview

Applied Equity Analysis treats stock valuation as a practical, hands-on tool rather than a vague, theoretical exercise—and covers the entire valuation process from financial statement analysis through the final investment recommendation. Its integrated approach to valuation builds viable connections between a firm’s competitive situation and the ultimate behavior of its common stock. Techniques explained include EVA, newer hybrid valuation techniques, and relative multiple analysis.

Product Details

ISBN-13:
9780071360517
Publisher:
McGraw-Hill Professional Publishing
Publication date:
05/14/2001
Series:
McGraw-Hill Library of Investment and Finance Series
Pages:
422
Product dimensions:
6.30(w) x 9.30(h) x 1.10(d)

Table of Contents

Prefaceix
Part 1Getting Started
Chapter 1A Day in the Life3
Talking the Talk4
Doing the Work10
Taking a Position15
Equity Analysis and Objectivity18
Notes20
Chapter 2Fundamentals of Equity Valuation21
GAAP-Based Financial Accounting22
The Problems with GAPP Accounting22
The Primacy of Return on Capital: High Times at Consolidated Imports Ltd.27
Competitive Equilibrium: Troubles for Consolidated Imports Ltd.34
Growth and Value: Hope Rises from the Ashes at Consolidated Imports Ltd.37
Transitory Earnings: An Unexpected 10 Percent Price Increase at Consolidated Imports Ltd.44
The Equivalence of Growth and Investment47
Growth in Perpetuity53
Notes54
Chapter 3Strategy and Competition I: The Firm's External Environment55
Good Companies = Good Stocks?56
Market Efficiency and Competitive Impediments57
SWOT, Nature, and Nurture59
The Generic Opportunities: Emerging to Mature Industries69
Beyond Porter72
Notes81
Chapter 4Strategy and Competition II: The Firm's Internal Competitive Resources83
The Porter Approach: Cost Leadership, Differentiation, and Focus84
The Resource View: What about Internal Resources?89
Sustaining Resource Heterogeneity89
Operational Effectiveness Is Not Strategy92
The VRIO System94
A Dynamic View: Renewal and Erosion of Advantage98
Notes99
Chapter 5Fundamentals of Stock Behavior101
A Thought Experiment: The Haugen Methodology103
The Evidence Suggests Market Bias Is Real, Maybe108
Implications for Investment Styles113
Efficient and Inefficient Markets118
If You're So Smart, Why Aren't You Rich?120
Maybe Keynes Was Right121
Notes121
Part 2The Basic Tools
Chapter 6Reading a Financial Statement: The Accuracy, Sustainability, and Predictability of Financial Information127
Financial Misreporting: The Seven Shenanigans129
Facing Reality: Earnings Surprises and Analytic Inertia135
Predicting performance: Nonrecurring Items137
An NRI Analysis of Gateway140
Notes144
Financial Statements146
Appendix 6-1Gateway Financial Statements146
Chapter 7Reading a Financial Statement: The Composition of Returns149
The Focus of Ratio Analysis Is ROE150
Margins Reveal Operational Decisions151
Turnovers Describe Investment Decisions152
Leverage Is the Return Amplifier156
Some Other Ratio Issues158
Connecting Strategy to Value160
The Composition of Returns160
Gateway Time Series Analysis161
Dell Computer in Its Industry Context165
Direct Sellers Have the Edge167
Notes168
Appendix 7-1Comparative Financial Analysis: Personal Computer Industry169
Chapter 8Reading a Financial Statement: Early-Stage Companies and Investment Capacity171
Stages of Company Development173
Startup: The Company Defines Itself173
Emerging Growth: The Battle Is Joined177
Notes183
Chapter 9Reading a Financial Statement: Later-Stage Companies and the Transition to Maturity185
Established Growth: Past the Shakeout186
The Transition to Maturity: Maximum Analytic Risk187
Mature Companies: The Old--But Good--Economy191
Declining Companies: Demand Shrinks192
Notes197
Chapter 10Economic Value Added: An Alternative to Traditional Analysis Techniques199
The Foundations of EVA200
The Firm As a Savings Account201
NOPAT Is the Pool of Profits209
Gateway: EVA in Practice215
Notes225
Appendix 10-1Gateway's Cost of Capital227
Cost of Equity227
Weighted-Average Cost of Capital228
Part 3Financial Models
Chapter 11Financial Modeling: Base Case Assumptions and Model Design231
Consistency and Continuity in Financial Models233
Those Pesky Quarterly Earnings Forecasts234
The Laws of Economics and Other Disappointments236
Financial Model Design: Tricks and Traps240
Starting a Financial Model: Dell Computer245
A Partial Reality Check249
Notes250
Appendix 11-1Dell Computer Corporation Consolidated Statement of Income251
Chapter 12Financial Modeling: The Income Statement and Balance Sheet259
The Income Statement: The Equity Analyst's Lodestone260
The Balance Sheet: Overcoming Circularity263
Closing the Balance Sheet: Avoiding Circularity267
Alternative Balance Sheet Closers270
Other Financial Model Features272
Notes272
Chapter 13Financial Modeling: The Statement of Cash Flows273
The Origins of the SOCF274
The Direct SOCF Format279
Total Cash Flow Format283
Notes286
Part 4Equity Valuation
Chapter 14Valuation: Foundations and Fundamentals289
Combat Finance290
Accounting Is Sometimes Annoying, But It Is Not Fatally Flawed292
Discounted-Cash-Flow Valuation293
Terminal Values Are a Big Deal296
Dell Computer300
Notes304
Chapter 15Combat Finance: Relative Methods and Companion Variable Models305
The Theory, As Usual306
The Computer Industry315
Other Industry Valuation Models318
Cheap Stocks324
Companion Variables and Target Prices326
Times Series Models330
Notes332
Chapter 16Hybrid Valuation Techniques333
An Equity Reformation334
Self-Correcting Valuations337
The Growth Content of Stock Prices338
The Complete Specification of Valuation Multiples345
Valuation Multiples and Company Performance347
Notes348
Chapter 17The Quirky Price/Earnings Ratio349
The Drivers of the P/E Multiple350
Gordon Growth and the P/E Ratio353
The P/E-to-Growth Ratio: Another Casualty355
P/E and the Franchise Factor358
Notes359
Chapter 18Valuation of Speculative Stocks361
Reverse Engineering Speculative Stocks363
Amazon.com364
The Calculation366
Dell Computer368
Relative Valuation Techniques Falter369
Another Rule of Thumb: Hope Springs Eternal369
High Growth Stocks: The Siegel Calculator371
Notes373
Chapter 19Equity Analysis and Business Combinations375
The Unfortunate Value Story376
Deals Happen Anyway382
Earnings Accretion and Value Addition384
Notes390
Part 5Getting It Down on Paper
Chapter 20Financial Writing: Don't Bury the Lead393
The Structure of an Analytic Report394
Giving the Reader a Break404
Style and Its Abuse406
The Chained-Logic Trap407
Notes408
Bibliography409
Index415

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