1 / 31

Module 8 – Abnormal Enterprise Income Growth Junichi Hara

Module 8 – Abnormal Enterprise Income Growth Junichi Hara. Where we are…. Learned three models: Free cash flow (FCF) method Residual income (RI) method Abnormal ent erprise income growth (AEIG) method. Conclusion. Value created when actual returns exceeds expected return

skip
Download Presentation

Module 8 – Abnormal Enterprise Income Growth Junichi Hara

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Module 8 – Abnormal Enterprise Income GrowthJunichi Hara

  2. Where we are… • Learned three models: • Free cash flow (FCF) method • Residual income (RI) method • Abnormal enterprise income growth (AEIG) method

  3. Conclusion • Value created when actual returns exceeds expected return • AEIG method least reliant on continuing value

  4. Agenda • Walkthrough • Comparison

  5. 1. Walkthrough

  6. AEIG Method: Three parts

  7. Part 1: Next Year’s EPAT AnchorAssumes firm earns same EPAT forever

  8. Part 1: Next Year’s EPAT

  9. Part 1: Next Year’s EPAT

  10. Part 2: agr Within Horizon agr = abnormal enterprise income growth Source of additional value Portion of future earnings exceeding expected return

  11. Part 2: agr Within Horizon Cum-FCF Income Normal Income

  12. Part 2: agr Within Horizon ForecastedIncome Expected Income

  13. Part 2: agr Within Horizon FCF earns expected rate of return Doesn’t provide additional value

  14. Part 2: agr Within Horizon Value created when firm earnsreturn higher than rEnt

  15. Parallel to Residual Income Value created when firm earnsreturn higher than rEnt

  16. Part 2: agr Within Horizon

  17. Part 2: agr Within Horizon

  18. Part 3: agrBeyond Horizon Continuing Value Is it realistic to assume perpetual agr > 0?

  19. Part 3: agrBeyond Horizon

  20. Part 3: agrBeyond Horizon

  21. 2. Comparison

  22. Equal results • Three methods learned: • Free cash flow (FCF) method • Residual income (RI) method • Abnormal ent. inc. growth (AEIG) method • All three models get the same results

  23. Assumptions • Sales g%: 2.34% • EPM: 4.05% • EATO: 3.45 • WACC 7.34%

  24. DCF Method

  25. Residual Income Method

  26. AEIG Method

  27. Result • Price as of March 14: $74.28 • Need to adjust forecasts

  28. So what’s the difference? • Source of value

  29. Breakdown of Value Estimate Abnormal Enterprise Income Growth Model least reliant on continuing value

  30. Conclusion • Value created when actual returns exceeds expected return • AEIG method least reliant on continuing value

  31. Questions?

More Related