Seminar 10 - AF 41 07 Fi nancial Sta te men t An alys is...

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AF 4107 – Financial Statement Analysis Seminars 10 – Chapters 7, 8, 10 & 11 : Forecasting
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2 Forecasting & Valuation Reading Reading : Forecasting: Chapters 7 & 8 (page 143 to 191) Valuation: Chapters 10 & 11 (page 205 to 242) of Lundholm Book Case : Kohl in above Chapters
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3 Seminar 10: Forecasting 1. Systematic Forecasting Framework Forecasting process To complete pro forma income statement, balance sheet and statement of cash flow A. Determine forecasting horizon (5-20 years) (5-20 years) B. Determine terminal period assumptions C. Update forecasting columns by actual financial results D. Compare current (2009) EPS forecast with consensus analyst forecast (reality check) (reality check) A. A. Sensitivity analysis Sensitivity analysis 1. 1. Kohl EPS forecast and forecasting Kohl EPS forecast and forecasting assumptions assumptions
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1. Systematic Forecasting Framework
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5 Framework for Forecast and Valuation STEP 1 Understanding the Past 1. Information Collection 2. Understanding the Business 3. Accounting Analysis 4. Financial Ratio Analysis 5. Cash Flow Analysis STEP 2 Forecasting the Future 1. Structured Forecasting 2. Income Statement Forecasts 3. Balance Sheet Forecasts 4. Cash Flow Forecasts STEP 3 Valuation 1. Cost of Capital 2. Valuation Models Residual Income- Based Valuation Cash Flow-Based Valuation 3. Valuation Ratios 4. Complications Negative Values Value Creation and Destruction though Financing Transactions
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6 Systematic Forecasting Framework (page 144 on L Book)
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7 Forecasting Process First input: sales sales - how rapidly a firm will grow? Forecast required levels of net operating assets to generate the sales growth and required amount of capital to finance the acquisition of operating assets.
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8 Forecasting Process Figure 7.1 process 1. left side: forecast margins, operating margins, operating expenses expenses , 2. right side: apply turnover ratios (working capital & PPE) to estimate estimate NOA NOA , future leverage ratio to estimate NFO estimate NFO (non-equity finance) 3. Use current/forecast interest rate x estimated NFO = forecast interest expenses interest expenses
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9 Forecasting Process Figure 7.1 process 1. Forecast depreciation depreciation after estimating PPE as part of the estimated NOA 2. Apply forecast effective tax rate to estimate tax expenses tax expenses 3. Complete
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This note was uploaded on 06/06/2009 for the course AF AF4107 taught by Professor Mableho during the Spring '09 term at Hong Kong Polytechnic University.

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Seminar 10 - AF 41 07 Fi nancial Sta te men t An alys is...

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