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Transcript of Finance Print
2009 NCS ( from B/S and I/S) = ending NFA – beginning NFA + dep = $
2009 △NWC (from B/S) = ending NWC – beginning NWC = $
2009 CFFA (or FCF) = $ Profit margin
Total asset turnover
If a firm does not wish to sell new equity and its profit margin, TAT, financial policy and dividend policy are all fixed, then there is only one possible growth rate! + Balance Sheet The convenient means of organizing & summerizing What a firm owns
What a firm owes
The difference between the two its assets its liability the firm's equity a snapshot of the firm firm assets liability equity listed in order of
the length of time for them
to convert to cash
in the normal course of business fixed assets current asset has a relatively long life tangible : a truck, a computer intangible : a trademark, patent has a life of less than one year
=asset will convert to cash within 12 months inventory, cash, accounts receivable current liability have a life of less than 1 year
=must be paid within the year long-term debt not due in the coming year =bonds long-term creditors = bondholders in the order
normally be paid The difference between
the total value of the assets & the total value of the liabilities sell all its assets (Assets)
- pay off its debts (liabilities) residual value remained belong to the shareholders (=shareholder's equity) Assets = Liability + Shareholder's equity balance sheet identity = equation Accounts payable Firm customers suppliers owe owe receivable payable Account payable Account receivable Financing Decision *Net Working Capital(NWC)=Current Asset – Current Liability Retained
Earnings Investment Decision The difference between a firm's current assets & its current liabilities N.W.C > 0
(positive) current assets > current liabilities = a healthy firm cash that will become available over the next 12 months exceeds the cash that must be paid over the same period The structure of the assets for a particular firm reflects the line of business the firm is in
managerial decisions about how much cash and inventory to have
fixed asset acquisition FIGURE 1.2: Interplay bet Firm and Financial Markets Firms raise capital from financial markets
Debt capital markets, Equity capital markets
Equity capital markets
Primary markets, Secondary markets
NYSE and NASDAQ in the US
KSE and KOSDAQ in Korea
Financial Markets Managerial compensation
Incentives can be used to align management and stockholder interests
The incentives need to be structured carefully to make sure that they achieve their goal
E.g., stock options, high salaries for CEOs
Managing Managers Short-term Perspective
easy to increase short-run profits by deferring maintenance or cutting short-run costs
may have little to do with what is good or bad for the firm
may be cooked if management feel obliged to do to make them look good
Only the income statement of a firm
ignore the balance sheet of a firm
Does not consider risk factor
Problems of Profit Maximization Corporate control Who ultimately controls the company?
Stockholders can fire managers through their elected directors who are the members of the board of directors
Eg, Steve Job’s resignation in Apple
Stockholders can act to replace existing management through a proxy fight. A proxy is the authority that vote someone else’s stock
Eg, Hewlett-Packard case
The threat of a takeover may result in better management (why?)
Managing Managers How can stockholders make managers act in the best interests of them?
It depends on two factors
How closely are management goals aligned with stockholder goals? the issue of the managerial compensation
Can managers be replaced if they do not pursue stockholder goals? the issue of control of the firm
Managing Managers To protect investors from corporate abuses
Sarbox requires that each company’s annual report must have an assessment of the company’s internal control structure and financial reporting
The auditor must then evaluate and attest to management’s assessment of these issues
Sarbox also requires that the officers of the corporation must review and sign annual reports
Sarbanes-Oxley Act(“Sarbox”) 2002 Direct Agency Costs
The purchase of a luxurious and unneeded corporate jet
The costs to monitor management actions
Indirect Agency Costs
Loss of opportunity when the opportunity is valuable to stockholders but very risky venture, which management may hesitate to take due to the possibility of job loss
The Agency Costs
What is Value Maximization? Long-term Perspective
Not rely on Accounting Numbers
Consider both the income statement and the balance sheet of a firm
Consider risk factor
Value Maximization Maximize revenue or M/S?
lower our prices or relax our credit terms
cut costs simply by doing away with things such as research and development
Problems of Other Goals What should be the goal of a corporation?
Maximize market share?
Maximize the current value of the company’s stock?
Goal of Financial Management Disadvantages
Separation of ownership and management
Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate) Advantages
Separation of ownership and management
Transfer of ownership is easy
Easier to raise capital
Corporation Forms of Business Organization Sole proprietorship: owned by one person
Partnership: A business with multiple owners but not incorporated
General Partners: share gains or losses with unlimited liability
Limited Partners: limited to his contribution
Corporation: A distinct legal entity FIGURE 1.1 CFO’s Roles Introduction to Corporate Finance Chapter 1 END OF CHAPTER 1 Agency relationship
Principal hires an agent to represent its interest
Agency problem(Moral Hazard)
Conflict of interest between principal and agent
Enron, WorldCom, Korean Chaebols, etc.
The Agency Problem Why are their roles are changing? CFOs were required to play a new role supporting their CEOs from the perspective of finance and strategy
Value creation for shareholders has become more important and increasingly emphasized Chief Financial Officer(CFO) Chief Financial Officer Traditional Role
Treasurer – oversees cash management, credit management,
capital expenditures and financial planning
Controller – oversees taxes, cost accounting, financial accounting
and data processing
Figure 1.1 Corporate Finance Some important questions that are answered in corporate finance
capital budgeting decisions
capital structure decisions
working capital management decisions Key Concepts and Skills Corporate Finance and CFO
Forms of Business Organization
The Goal of Financial Management
The Agency Problem and Control of the Corporation
Financial Markets and the Corporation Key Concepts and Skills Case: The McGee Cake The McGee Cake Business partners or
strategic coordinators The Roles are Changing Financial management perspective A strategic management viewpoint Financial cops Working Capital Management Decisions How will we obtain any needed short-term financing? Will we purchase on credit or will we borrow in the short term and pay cash? Should we sell on credit or just for cash?
If on credit, what terms will we offer, and to whom? How much cash and inventory should we keep on hand? Debt and Equity Markets The differences with any market How trading is
conducted Who the buyers and
sellers are The types of securities
that are traded A financial market Equity Debt Limited Liability Company(LLC) Partnerships Medical practices The form of limited liability companies
in the USA The owners only have limited liability for its debts. LLC is operated and taxed like a partnership. 1 Corporation CFO’s Treasury Roles Closely related Capital budgeting decisions and capital structure decisions Capital budgeting decisions Working capital management Financial
Planning Capital Expenditures Credit Manager Cash Manger Treasurer Priority in Distribution of Cash Reinvestment Retained earnings Reinvestment Dividends Shareholders Government Tax payments Interest payments Creditors Suppliers employees Revenues End of Document 2009 CF to Creditors (B/S and I/S) = interest paid – net new borrowing
2009 CF to Stockholders (B/S and I/S) = div paid – net new equity raised
2009 CFFA Cash Flow Identity Cash Flow Calculations US Corporation BS-Table2.1 Cash Flow From Assets (CFFA)
= Free Cash Flow = Net Cash Flow
= OCF – NCS – ΔNWC
* OCF(Operating Cash Flow)=EBIT + Depreciation - Tax
* NCS(Net Capital Spending)
=Fixed Asset(t) - Fixed Asset(t-1) + Depreciation
* NWC(Net Capital Spending)
=Current Asset – Current Liability
* Δ NWC=NWC(t) - NWC(t-1) Cash Flow From Assets Corporate Taxes Which one of the following statements related to an income statement is correct? Assume accrual accounting is used. A. The addition to retained earnings is equal to net income plus dividends paid. B. Credit sales are recorded on the income statement when the cash from the sale is collected. C. The labor costs for producing a product are expensed when the product is sold. D. Interest is a non-cash expense Question 2 Sample Income Statement
(from 1/1/2011 – 12/31/2011) The income statement is more like a video of the firm’s operations for a specified period of time.
Matching principle of GAAP says that you show revenue when it accrues and match the expenses required to generate it.
So matching principle leads to non-cash deductions like depreciation.
This is why net income ≠ cash flow. Income Statement The balance sheet provides the book value of the assets, liabilities and equity.
Market value is the price at which the assets, liabilities or equity can actually be bought or sold.
Market value and book value are often very different. Why?
Which is more important to the decision-making process? Market Vs. Book Value Question1 Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital? A. -$100 B. $300 C. $600 D. $1,700 The Balance Sheet
Book Value vs. Market Value
The Income Statement
Accounting Income vs. Cash Flow Chapter Outline Financial Statements, Taxes and Cash Flows Chapter 2 Prepare the followings:
IS and BS for 2009 and 2010
OCF for 2009
CFFA for 2009
CF to Creditors for 2009
CF to Stockholders for 2009
Answer the questions on page 45 Mini Case: Sunset Boards, Inc. Cash Flow is the most important pieces of financial information that can be obtained from financial statements
By cash flow, we simply mean the difference between the number of dollars that came in and the number of dollars that went out. Cash Flow Average tax rate is the tax bill divided by the taxable income.
Marginal tax rate is the rate of the extra tax you would pay if you earned one more dollar.
The percentage tax rates shown in table 2.3 are all marginal rates. (The tax rates in table 2.3 apply to the part of income in the indicated range only, not all income) Average Vs. Marginal Tax Rates The balance sheet is a snapshot of the firm’s assets and liabilities *at a given point in time
Assets are listed in order of *liquidity
What is liquidity?
Balance Sheet Identity
Assets = Liabilities + Equity Balance Sheet US Corporation IS–Table 2.2 *Net Working Capital(NWC)=Current Asset – Current Liability Financing Decision Retained
Earnings Investment Decision The Balance Sheet as of 2011/12/31 Profit Margin = Net Income / Sales
Pru’s 09 PM=363/2311=15.7%
Return on Assets (ROA) = Net Income / Total Assets
Return on Equity (ROE) = Net Income / Total Equity
ROE=363/2591=14% Profitability Measures End of Document There is no underlying theory, so there is no way to know which ratios are most relevant
Benchmarking is difficult for diversified firms
Globalization and international competition makes comparison more difficult because of differences in accounting regulations
Varying accounting procedures, i.e. FIFO vs. LIFO
Different fiscal years
Extraordinary events Potential Problems Ratios are not very helpful by themselves; they need to be compared to something
Used to see how the firm’s performance is changing through time
Peer Group Analysis
Compare to similar companies or within industries
E.g., Standard Industrial Classification (SIC) codes
Table 3.10 Benchmarking ROE = NI / TE
ROE = (NI / Sales) (Sales / TA) (TA / TE)
= PM * TAT * EM
Pru’s 09 ROE=15.7%*0.64*1.39=14%
*PM (Profit Margin): operating efficiency
*TAT (Total Asset Turnover): asset use efficiency
*EM (Equity Multiplier): financial leverage Deriving the "Du Pont Identity" Inventory Turnover = Cost of Goods Sold / Inventory (times)
Pru’s 09 IR = 1344/422=3.2 times
Days’ Sales in Inventory = 365 / Inventory Turnover (days)
DS in Inv=365days/3.2=114days
Receivables Turnover = Sales / Accounts Receivable (times)
Days’ Sales in Receivables(or Average Collection Period, ACP) = 365 / Receivables Turnover (days)
ACP=365 days/12.3=30 days Asset Management, or Turnover Ratios Total Debt Ratio = TD/ TA
Prufrock’s 09 TDR=997/3588=0.28 or 28%
Debt/Equity = TD / TE
D/E=997/2591=0.39 or 39%
Equity Multiplier = TA / TE = 1 + D/E
Times Interest Earned(or Interest Coverage Ratio) = EBIT / Interest=691/141=4.9 times
Cash Coverage=EBITD/Interest=967/141=6.9 times Long-term Solvency Ratios Current Ratio = CA / CL
Prufrock’s 2009 CR=$708/$540=1.31 times
Quick Ratio = (CA – Inventory) / CL
Cash Ratio = Cash / CL
CR=98/540=0.18 times Liquidity Ratios Short-term solvency or liquidity ratios
Long-term solvency or financial leverage ratios
Asset management or turnover ratios
Market value ratios Categories of Financial Ratios Common-Size I/S Common-Size B/S We want to compare A firm’s F/S to B firm’s
It is impossible to directly compare F/Ss for two companies because of differences in size Why do we standardize F/Ss? Standardized Financial Statements
The Du Pont Identity
Using Financial Statements Information Chapter Outline Working with Financial Statements Chapter 3 PE Ratio (PE Multiple) = Price per share / Earnings per share (times)
EPS = Net Income / Shares outstanding
Pru’ 09 EPS=$363m/33m shares=$11
09 US Average PE=15~20 times
Market-to-book ratio (PB Ratio)= market value per share / book value per share
Pru’s 09 PBR=$88/($2591m/33m)=88/78.5=1.1
The firm has been successful in creating value for shareholders Market Value Measures Payables Turnover = COGS / Account Payables
Pru’s 09 PT=1344/344=3.9 times
Days’ sales in payables = 365/3.9 = 94 days
Total Asset Turnover = Sales / Total Assets (times)
Measure of asset use efficiency
Not unusual for TAT < 1, especially if a firm has a large amount of fixed assets
Pru’s 09 TAT=2311/3588=0.64 times Asset Turnover Ratio(conti.) Ratios also allow for better comparison through time or between companies
As we look at each ratio, ask yourself what the ratio is trying to measure and why is that information important Ratio Analysis Summary of Standardized B/S Common-Size Balance Sheets
Compute all accounts as a percent of total assets
Common-Size Income Statements
Compute all line items as a percent of sales How to standardize F/Ss? long-term investment Financial Investment
-issue corporate funds
-issue bonds short-term ability to pay your debt or liability long-term ability to pay your debt or liability how efficiently using assets (assets' utilization is) - management 관련 사람들의 주요 관심사항 based on stock price & accounting values Liquidity 중에서 가장 통용되고 중요한 Ratio >1 = Liquidity condition is good * Net Working Capital = CL - CA > 0
-> Liquid 함을 의미 but too much liquidity is also bad for company
너무 많은 Liquidity 또한 비용을 창출하므로 너무 높은 Current Ratio도 좋지 않다. Inventory 부분을 빼는 이유?
Inventory = The least liquid assets 이 둘의 관계? Dept Ratio = TD TA TE TD TD TE TE TE TD TE 1 + TD TE = = Tell u earnings = That can pay interest
-> safe repayment EBIT + Depreciation = EBITD
*including depreciation 114일마다 전체 inventory가 빈다
=inventories are sit in or stay by 114 days
재고가 114일을 주기로 창고에 머문다. how fast do i collect my money Accounts Receivable = credit sales collect account receivables(credit sales) in 30days = fast (buy based on credit) how fast or slow we repay our credits cost of good sales payable = cost (생산 재료를 사는 비용이므로)
receivable = sales
pay는 slow할수록 더 낫고, collect는 더 빠를수록 좋다.
-기업의 신뢰가 높거나 회사의 경쟁력이 높아 market power가 강하면 이런 상태가 가능하다. **이것들이 대표적 Ratio how profitable the company is investment에서 중요한 요소 stock price is lower than US Average PE Why? 2가지 주장
1) 회사가치에 비해 주가가 낮음 (Under Value 과소평가/ 시세보다 싸게 평가됨)
-> 투자자들에게 suggest investment
2) make good earning but low gross perspective
future prospective is not good -> 따라서 주가가 낮음
really has low value big number in PBR
=market 가치가 더 높음 book value of equity (not asset) per share stock price = price of equity profit margin
=profitability 3 components **
if u want to increase ROE, you need to increase 3 factors (=3 critical drivers) Question,
it is good for company that has no dept (0% dept) ? => EM = 0 따라서 ROE가 0이 됨
dept가 전혀 없는 것은 poor management이다
some debt gives u advantages. Question.
The meat market has $747,000 in sales. The profit margin is 4.1 percent & the firm has 7,500 shares of stock outstanding. The market price per share is $27. What is the price-earning ratio? Profit margin = NI/Sales = x/747,000 = 4.1%
**NI = 30,627
PER = P/EPS = = 6.62 20,627/7500 $27 asset number -> percentage of asset 숫자의 %화 to standardize
크기가 다른 두 회사의 비교를 위해 14% 상승 6% 상승 A/R 증가 total asset의 영향력을 포함한 경우 total asset effect를 제거한 후의 A/R 만의 상승률
=Net account grow of A/R itself easier to transfer to cash financing & Investment decision's result as sequence of liquidity as sequence of maturity brand name, trademark, goodwill etc. current price historical cost = when u acquire them time difference / inflation effect market value does not include everything (예) 스티브 잡스의 가치 like human resources some important item is missing market value information 손익계산서 ≠ snapshot 특정 기간 내의 performance 수익비용 대응의 원칙
=대응원칙 if you sell it, it is revenue
no matter you collect real money(cash) or not expenses should be
matched with revenue. ≠ cash flow = 1,000,000 10년 years = $ 100,000 1,000,000 $ 900,000 I/S ; Fixed-asset depreciation (Expense) 감가상각비 기계연수 10년 기계구입비 매년 비용으로
계상되는 금액 B/S ; 나머지 비용은 asset! Accrual Basis Cash Basis ↕ 발생주의 회계 =sales include to shareholder's equity NI Link $ 50 $ 50 dividend = shareholder retained earnings added on balance sheet go outside of company Equity income에 따라 tax rate이 달라진다.
=Marginal tax rate Suppose our corporation has a taxable income of $85,000.
(1) What is its tax bill?
(2) What is its average tax rate(ATR)?
(3) What is its marginal tax rate? Example 50,000 x 0.15 = 7,500
25,000 x 0.25 = 6,250
10,000 x 0.34 = 3,400 $ 85,000 $ 17,150 ATR = $ 17,150 85,000 X 100 = 20.2% (1) tax bill = 17,150 (2) (3) =additional dollar marginal tax rate = 34% ※New product를 출시할 때 cash flow에서 고려해야할 tax rate는? ∴Marginal tax because new product로 인한 income은 additional money 이므로 ***** cash that come in and go out *** Remember cash flow generated from operating balance sheet amount △ difference
=change * NWC=Net Working Capital ※credit sales = 신용판매, 외상판매 liability ↓
⇒ cash flow가 사용됨 1) 이론 학습
2) measuring/ 계산/ 측정 방법 알기 LTD short-term debt re-borrow money
issue more bonds ① ② ③ ④ ⑤ ⑥ ⑦ investment short-term
investment ※ EBIT
operating cash flow에서 interest는 고려하지 않는다
⇒ interest 는 operating 수익, 지출이 아니기 때문에 cash inventory = cost of company (incentive, advertisement) (expansion 확장과 같은 결정) * 재무에서 중요한 3가지 결정 debts & equity 간의 균형 CFO의 2가지 역할 투자 - Accounting - capital budgeting ⇒ value creating ** 현재는 Treasurer 역할이 controller 역할보다 중시됨 Combines
some of the features LLC = Partner + Corporation 의 Mixture ***** B/S Asset Debt Equity I/S Revenue
(-) Cost Profit profit은 I/S에만 집중하게 되는 문제를 낳는다. cash flow 1) cost
-suppliers 2) Creditors 3) Government 4) Shareholders cash flow time -actual cash coming in and out r=discount rate
: reflect risk factor ⇒ 회계적 조작이 불가능 t=1을 조작한다면 미래 현금흐름에 영향을 주므로 CF1 CF2 CF3 ↑↑ ↓ ↓ cash flow는 investment in Assets 을 포함한다.
invest = (-) cash flow Primary
= issuing market (=Initial Public Operate, IPO)
= trading market (NYSE, NASDAQ, KOSKAQ) End of Document Mini Case pp 117~118 Stop and Go has a 4.5 percent profit margin and a 15 percent dividend payout ratio. The total asset turnover is 1.6 and the debt-equity ratio is 0.60. What is the sustainable rate of growth? A. 10.85 percent B. 10,26 percent C. 9.89 percent D. 9.25 percent Quiz The sustainable growth rate tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt equity ratio (No new equity is issued). The Sustainable Growth Rate The internal growth rate tells us how much the firm can grow assets using retained earnings as the only source of financing (Debt ratio declines). The Internal Growth Rate What does it mean that fixed assets grow as much as sales?
The profit margin is 20% and the retention ratio is 30%. Last year’s sales were $50 million and total assets were $40 million. None of the liabilities vary directly with sales, but assets and costs do. If the sales growth rate is 20%, how much external financing is needed?
A. $3.8 million
B. $4.4 million
C. $5.8 million
D. $6.2 million Questions Borrow more short-term (Notes Payable)
Borrow more long-term (LT Debt)
Sell more common stock (CS)
Decrease dividend payout, which increase the additions to retained earnings (RE) Financing Options EFN = TA – TL&E
= 10,450 – 10,250 = $200
Without 200 new financing, Tasha cannot grow at 10%!
Next Step: How to finance $200? External Financing Needed (EFN) Example: Balance Sheet Income Statement
Costs may vary directly with sales
Dividends are a management decision (Retained earnings on B/S will be decided)
Initially assume that all assets, including fixed, vary directly with sales
Accounts payable will vary directly
However, notes payable, long-term debt and equity generally do not vary directly with sales Percent of Sales Approach Sales Forecast
Pro Forma Statements based on Sales Forecast
Asset Requirements to meet sales projections
Financial Requirements needed to pay for the required assets
Financing decisions about what type of financing will be used Financial Planning Model
: The Ingredients What is Financial Planning?
The Percentage of Sales Approach
External Financing and Growth
Some Caveats Regarding Financial Planning Models Chapter Outline Long-Term Financial Planning and Growth Chapter 4 Example: Income Statement b ROE Determinants of Growth New sales forecast B/S 보다 I/S부터 고려한다.
-I/S should be ready first! B/S I/S Sales
.... NI Dividends
Retaining Earning Asset Debt Equity 견적에 의한 New sales forecast ↑ ↑ ② ① ↑ ↑ ③ 10% ↑ 10% ↑ ↑ 10% ↑ I/S Sales
.... NI Dividends
Retained Earning ↑ ④ ↑ ↑ ↑ ⑤ ⑥ ⑦ ⑧ Debt & Equity Debt ↑ or
Equity ↑ or
Debt ↑ and Equity ↑ ↑ A D E ⑨ Asset 과 (Debt + Equity) 간의 차액이 발생 A - ( D + E )
= External Financing Needed (EFN) Dept가 변화하면 이자도 그만큼 증가하고 결국 Net Income 에 영향을 미쳐 Retained Earning도 달라진다. 또한, Retained Earning의 차이로 인해 Equity로 변화한다. sales가 10% 변화하면 I/S내의 구성요소도 10%의
같은 증가율을 보인다.
⇔ Sales가 변화한만큼 I/S 구성요소 각각의 구성비율 역시 변화해 전체의 비중이 그대로 유지된다. ↑ ↑ D/E의 비율은 고려하지 않아도된다. Sequence and dividends should be decided which percent (n%) related to sales
-sales가 변하면 Accounts Payable도 변한다. Short-term borrow Assumption "forecast" 10% increase 60% 40% 16% 24% B/S as earning surplus
⇒ Equity ↑ +660 directly infected by sales n/a = 해당 없음(notapplicable)
= don't change all assets increase
by 10% because sales increase by 10% 차이발생
difference = 20 "should finance from outside" *** *** =Retained Earning Ratio ↔ Dividend Payout Ratio =increase its capacity Asset $40 Liability
Equity 40 + 8 = 48 40 20% ↑ Sales $50
Cost vary = 달라지다 ** previous Asset ($40) = previous Liability + Equity ($40) 20% ↑ $60 new sale Net Income $12 profit margin = 20% 60달러의 20% = 12달러
따라서 NI = $12 profit margin
20% 70% 30% 12 X 30% = 3.6 + 3.6 = 43.6 + $8 EFN = 48-(10+3.6) = 4.4 million Gathering new Dept or Equity
(Gathering new money) ∴ 주어진 big picture number만 고려!
specific item (current asset 등)은 고려하지 않아도됨! Maximum growth rate that company could achieve when increase sales without any out-source financing b = retention ratio
ROA = Return on Asset Dept 없이 Retained earning만으로 투자할 경우 Dept Ratio = D
A ↑ ⇒ Dept Ratio ↓ Maximum growth rate that company could achieve when increase sales without new equity financing Equity 없이 Internal money + Debt만으로 투자할 경우 issuing Equity cause a lot of expenses
(very expensive source of financing) Growth Rate is closely related with Financing ∴ *** Dept-Equity Ratio = D
E ↑ D
E + $ 3.6 + $ 3.6 = 100 % (constant Dept-Equity Ratio) increased from Retained Earning Financing
Source (Du Pont) ⇒ ROE + b 의 변화 없이는 Growth Rate를 변화시킬 수 없다. ↔ 0.85 percent = b ROE = PM X TAT X (1+D/E) Sustaining Growth Rate = ROE x b
1-(ROExb) = 4.5% x 1.6 x (1+0.6) =11.52% =10.85% 0.1152 x 0.85
1-(0.1152x0.85) = 회사의 목적은 ROE ↑↑ how we can increase ROE?
1) increase PM
2) increase TAT -> fixed asset should be fully utilized
3) increase EM 3 important factors EM = 1 + Dept
Equity n% B/S Asset Debt Equity Asset is fixed
Debt & Equity Ration Past history와 비교 To other peer group과 비교 compare with similar companies within the same industry's ratio *** 일정한 기준이 존재하지 않으므로 다른 기업과의 비교를 통해서 그 우위를 알 수 있다. 글로벌기업은 여러 사업 분야가 mixed 되어있기 때문에 어떤 한 분야만 떼어내어 다른 유사 경쟁기업간의 비교가 어렵다. different accounting principles