Macroeconomic and Industry Analysis参考.ppt

CHAPTER 17 Macroeconomic and Industry Analysis Price-Earnings Ratio and Growth The ratio of PVGO to E / k is the ratio of firm value due to growth opportunities to value due to assets already in place (i.e., the no-growth value of the firm, E / k ). Price-Earnings Ratio and Growth When PVGO=0, P0=E1 / k. The stock is valued like a nongrowing perpetuity. P/E rises dramatically with PVGO. High P/E indicates that the firm has ample growth opportunities. Price-Earnings Ratio and Growth P/E increases: As ROE increases As plowback increases, as long as ROEk Table 18.3 Effect of ROE and Plowback on Growth and the P/E Ratio P/E and Growth Rate Wall Street rule of thumb: The growth rate is roughly equal to the P/E ratio. “If the P/E ratio of Coca Cola is 15, you’d expect the company to be growing at about 15% per year, etc. But if the P/E ratio is less than the growth rate, you may have found yourself a bargain.” Quote from Peter Lynch in One Up on Wall Street. P/E Ratios and Stock Risk When risk is higher, k is higher; therefore, P/E is lower. Pitfalls in P/E Analysis Use of accounting earnings Earnings Management Choices on GAAP Inflation Reported earnings fluctuate around the business cycle Figure 18.3 P/E Ratios of the SP 500 Index and Inflation Figure 18.4 Earnings Growth for Two Companies Figure 18.6 P/E Ratios for Different Industries, 2007 Other Comparative Value Approaches Price-to-book ratio Price-to-cash-flow ratio Price-to-sales ratio Figure 18.7 Market Valuation Statistics Free Cash Flow Approach Value the firm by discounting free cash flow at WACC. Free cash flow to the firm, FCFF, equals: After tax EBIT Plus depreciation Minus capital expenditures Minus increase in net working capital Comparing the Valuation Models In practice Values from these models may differ Analysts are always forced to make simplifying assumptions The Aggregate Stock Market Explaining Past Behavior Forecasting the Stock Market Table 18.4 SP 500 Price Forecasts Under Variou