Coefficients abc 199 9210 000 807 115 087 7007 000 23747 466 876

Coefficients abc 199 9210 000 807 115 087 7007 000

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Coefficients a,b,c 4.392E-02 .005 .199 9.210 .000 .807 .115 .087 7.007 .000 23.747 .466 .876 50.955 .000 -.607 .085 -.187 -7.110 .000 Expected Growth in EPS: next 5 y PAYOUT MARGIN Beta Model 1 B Std. Error Unstandardized Coefficients Beta Standar dized Coefficients t Sig. Dependent Variable: PS RATIO a. Linear Regression through the Origin b. Weighted Least Squares Regression - Weighted by Market Cap c.
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Aswath Damodaran 160 Cross Sectional Regression for Portugal in June 1999 n Using data on 74 Portuguese companies from 1999, we regressed PS ratios against profit margins: PS = 0.98 + 6.96 Margin (4.34) (3.07) R 2 = 45.29%
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Aswath Damodaran 161 Value/Sales Ratio: Definition n The value/sales ratio is the ratio of the market value of the firm to the sales. n Value/ Sales= Market Value of Equity + Market Value of Debt-Cash Total Revenues
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Aswath Damodaran 162 Value/Sales Ratio: Cross Sectional Distribution EV/SALES 1400 1200 1000 800 600 400 200 0 Std. Dev = 2.48 Mean = 2.01 N = 4644.00
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Aswath Damodaran 163 Value/Sales Ratios: Analysis of Determinants n If pre-tax operating margins are used, the appropriate value estimate is that of the firm. In particular, if one makes the assumption that Free Cash Flow to the Firm = EBIT (1 - tax rate) (1 - Reinvestment Rate) n Then the Value of the Firm can be written as a function of the after-tax operating margin= (EBIT (1-t)/Sales g = Growth rate in after-tax operating income for the first n years g n = Growth rate in after-tax operating income after n years forever (Stable growth rate) RIR Growth, Stable = Reinvestment rate in high growth and stable periods WACC = Weighted average cost of capital Value Sales 0 = After - tax Oper. Margin * (1 - RIR growth )(1+ g)* 1 - (1 + g ) n (1+ WACC) n WACC - g + (1- RIR stable )(1+ g) n * ( 1 +g n ) (WACC - g n )(1+WACC) n
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Aswath Damodaran 164 Value/Sales Ratio: An Example n Consider, for example, the Value/Sales ratio of Coca Cola. The company had the following characteristics: After-tax Operating Margin =18.56% Sales/BV of Capital = 1.67 Return on Capital = 1.67* 18.56% = 31.02% Reinvestment Rate= 65.00% in high growth; 20% in stable growth; Expected Growth = 31.02% * 0.65 =20.16% (Stable Growth Rate=6%) Length of High Growth Period = 10 years Cost of Equity =12.33% E/(D+E) = 97.65% After-tax Cost of Debt = 4.16% D/(D+E) 2.35% Cost of Capital= 12.33% (.9765)+4.16% (.0235) = 12.13% Value of Firm 0 Sales 0 =.1856* (1-.65)(1.2016)* 1 - (1.2016) 10 (1.1213) 10 .1213-.2016 + (1-.20)(1.2016) 10 * (1.06) (.1213-.06)(1.1213) 10 = 6.10
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Aswath Damodaran 165 Value Sales Ratios and Operating Margins Coca Cola: The Operating Margin Effect 0 2 4 6 8 10 12 6% 8% 10% 12% 14% 16% 18% 20% Operating Margin Value/Sales Ratio 0 50 100 150 200 250 $ Value Value/Sales $ Value
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Aswath Damodaran 166 MSEL GDYS RET.TO MLG MHCO ZANY PSRC FINL ROSI FLWS LVC TWMC SPGLA SAH RUSH MDA DBRN GADZ WLSN CELL FNLY JILL IBI CLWY ANIC VOXX CHRS PSS BKE Z MTMC HMY PBY URBN ROST AEOS PGDA CC BEBE ITN CAO GBIZ DAP RUS MNRO SCHS HLYW MENS LE LIN MDLK RAYS PIR GLBE ZQK MIKE CWTR IPAR ANN AZO BBY LTD ZLC ORLY FOSL PSUN CLE PLCE JWL SATH PCCC WSM TLB HOTT CPWM TWTR SCC BFCI TOO VVTV MBAY BID DABR ISEE CHCS CDWC LUX -0.0 0.5 1.0 1.5 2.0 -0.000 0.075 0.150 0.225 Operating Margin V / S a l e s U.S. Specialty Retailers: V/S vs Operating Margin
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Aswath Damodaran 167 Brand Name Premiums in Valuation n
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