by Dr. Mizanur Rahman Professor of Accounting & Public Policy University of Dhaka

Transcription

1 Fundamenal Valuaion and Financial Saemen Analysis by Dr. Mizanur ahman Professor of Accouning & Public Policy Universiy of Dhaka -mail: Training Program on Capial Marke esearch Organized by: Accouning for Capial Marke Developmen A esearch Projec funded by he World Bank and adminisered by he Universiy Grans Commission of Bangladesh (UGC) DPATMNT OF ACCOUNTING & INFOMATION SYSTMS (AIS) UNIVSITY OF DHAKA Parnerships and Collaboraions: WOLD BANK UNIVSITY GANTS COMMISSION OF BANGLADSH (UGC) CHITTAGONG STOCK XCHANG (CS) BANGLADSH MCHANTS BANKS ASSOCIATION (BMBA) TH FINANCIAL XPSS CAPITAL MAKT JOUNALISTS FOUM (CMJF) Ocober 2, 205 Valuaion: Dividend Discoun Model The dividend discoun model of sock valuaion implies ha d () p( ) p q. where p represens marke value of he sock a ime +, d represens he forecas dividend a ime +, is he appropriae ime non-varying discoun rae used o capialize he fuure sream of benefis o he sockholders. d (2) p( 2) d ( ) p( +) p,, p Ieraing and replacing p ino q.() will produce he following dividend discoun model for equiy valuaion. p d q. 2 For a going concern and given he esimae of he required rae of reurn, he formula requires forecasing dividends o infiniy. 2

2 Valuaion: Dividend Discoun Model For a going concern and assuming no growh in dividend, he model soluion will be as follows: d po. This is case of perpeual bond offering fixed income. Informaion requiremen is he amoun of fixed dividend over infinie period. Should here be a consan growh in dividend, he forecasing job is again simple and i involves forecasing nex period dividend and growh rae in he fuure dividends. d po. Informaion requiremen is complicaed. g Should here be abnormal growh in dividends over ime T and afer han a consan-growh dividend, he model will look as follows: T T p d p o T Informaion requiremen is furher complex. Is dividend payou is consan? Wha if managemen defers dividend paymen o a fuure period? Wha if managemen combines cash dividend wih sock dividend? Can we predic managemen s dividend policy? 3 Valuaion: esidual Income Valuaion Model () Consider he clean surplus relaion ha B B x d. A rearrangemen of his clean surplus relaion shows ha he fuure dividend is ied o earnings afer axes and he evoluion of book value of equiy as follows: d x B B Following he clean surplus relaion (CS) and subsiuing d by d x B B, i can be shown ha P [ x ( B B )] ( ) ( ) x 3 ( B 3 B 2) P x B B x B B 2 P B [ x B ] q. 4 where P represens he value of he common equiy a ime, value of he common equiy, is one plus he required rae of reurn for B is he book common equiy, x represens he expeced comprehensive ne income and [ x B ] represens he forecas residual income. Le us denoe his. x 4 2

3 Valuaion: esidual Income Valuaion Model (2) Since x B OC ] B, i is shown ha he forecas residual earnings depends on he forecas reurn on common equiy and he book value of common equiy B. Noe ha he variable B is predeermined in he model and so weakly exogenous. An assumpion ha afer some erminal dae T a going concern will earn a seady sae firm-specific growh gi in is profiabiliy will produce he following model soluion: T x T ( T ) P B x B x g For a business wih no abnormal sream of earnings over he erminal period T, he model soluion is x ( ) P B g For a business wih no seady sae growh in residual earnings afer he erminal dae T, he model soluion will be simply T x T ( T ) P B x 5 Valuaion: esidual Income Valuaion Model (3) Thus he valuaion job involves a reliable forecas of x and g, ha are respecively one period ahead forecas of residual earnings and growh in expeced residual earnings. The erm x B represens he expeced residual earnings defined as he expecaion of he comprehensive ne income (CNI) minus he cos of common equiy B. Since x B OC ] B, i is shown ha he forecas residual earnings depends on he forecas reurn on common equiy and he book value of common equiy B B is predeermined in he model and so weakly exogenous.. Noe ha he variable I can be easily shown ha OC Flev NBC 6. i- OA Ollev OA i 6.2 i- OC OA Tlev OA TBC 6.3 i- NOI NOI Sales = = - Sales - =PM ATO 6.4 The equaions (6.) hrough (6.4) idenifies a se of derivers of OC and hose can be employed o forecas fuure residual earnings. 6 3

4 (IV) Model: Idenificaion of Financial aios Thus he valuaion job involves a reliable forecas of x and g, ha are respecively one period ahead forecas of residual earnings and growh in expeced residual earnings. The erm x B represens he expeced residual earnings defined as he expecaion of he comprehensive ne income (CNI) minus he cos of common equiy B. Since x B OC ] B, i is shown ha he forecas residual earnings depends on he forecas reurn on common equiy and he book value of common equiy B B is predeermined in he model and so weakly exogenous.. Noe ha he variable I can be easily shown ha OC Flev NBC 6. i- OA Ollev OA i 6.2 i- OC OA Tlev OA TBC 6.3 i- NOI NOI Sales = = - Sales - =PM ATO 6.4 The equaions (6.) hrough (6.4) idenifies a se of derivers of OC and hose can be employed o forecas fuure residual earnings. 7 (IV) Model: Forecasing Growh in esidual Income Scenario : Consan Growh ae in esidual arnings is growh rae in. Scenario 2: Consan, Consan PM and Consan ATO Growh ae in esidual arnings is only forecas growh in Sales. 8 4

5 Applicaion of (IV) Model: Coca Cola Company 9 Applicaion of (IV) Model: Coca Cola Company 0 5

6 Applicaion of (IV) Model: Coca Cola Company 6