Dividend Payout Ratio

The dividend payout ratio is total common dividends divided by income available to common shareholders. We can better understand the company's financial situation by analyzing the payout ratio in relation to the investment rate. If the company has a high dividend payout ratio and an investment rate greater than one, then it must be borrowing money to fund a negative free cash flow, to pay interest, and to pay dividends. We might be concerned about how sustainable this is. On the other hand, a...

Equity Method And Consolidation Method Roic

Only il the value has clearly and permanently risen Usually done only with respect to real estate assets Yes, if there is permanent increase in value Market prices, as No revaluation reservesare Yes estimated by taxable at the corporate tax authorized experts rate. They are accounted for as exceptional profits' Yes, since 1954, under certain Market value Only according to government decree (most recent in 1983, TOO, and 1991 No, except that land can be Market value Using government 1991...

1

For unfunded and unrecorded pension liabilities that are material, the proper procedure is to first adjust the financial statements to how they would appear if the liability were recorded. Then follow the procedure above for calculating NOPLAT and invested capital. Adjusting the financial statements involves reclassifying a portion of retained earnings as the pension liability and adjusting each year's earnings by the increase in the unfunded liability. To avoid enormous swings in ROIC...

Multibusiness Valuation

Many valuations involve multibusiness companies whose futures depend on successful management of the portfolio of business units under their control. Multibusiness valuation is useful for several purposes, not the least of which is simply understanding the business. Strategic decisions for most multibusiness companies take place at the business-unit level. Thorough understanding of the company requires careful analysis of the threats and opportunities faced by each business unit. A company...

Dealing with Exchange Rates and Inflation Rate Gaps

In many emerging market companies, the individual components of the cash flows are not denominated in the same currency. A substantial portion of a company's revenues and debt may be denominated in dollars, for example, while its expenses are primarily local. Consider an oil exporter. Its revenues are determined by the dollar price of oil while many of its costs labor and local purchases are determined by the local currency. Unless foreign exchange rates immediately adjust to inflation...

Ex Ante Estimates of the Market Risk Premium

An alternative to the historically estimated market risk premium is an ex ante estimate, one based on the current value of the share market relative to projections of earnings or cash flows. One approach estimates the expected rate of return on the market portfolio, E rm , by adding the analysts' consensus estimate of 10 E. Fama and K. French, ''Dividend Yields and Expected Stock Returns, Journal of Financial Economics October 1988 , pp. 3-26 A. Lo and C. MacKinlay, Stock Prices Do Not Follow...

Info

Nmei 12 discount rate assumed, ioiirce Compustat. Exhibit 5.9 Evidence That the Market Reacts Favorably to Increases in Investment Exhibit 5.9 Evidence That the Market Reacts Favorably to Increases in Investment dividends over the next several years. For a random sample of 20 Fortune 500 companies, as shown in Exhibit 5.8, an average of only 9.2 percent of the total share value could be accounted for by dividends expected in the next five years. The largest percentage of value that the next...

Marketable Securities Heineken

Heineken's operating expenses not including depreciation as a percentage of revenues have fluctuated between 83.5 percent and 86.6 percent during 1994 to 1998, with the lowest figure recorded in 1998. Only the years 1996 to 1998 are comparable because of the acquisitions of Fischer Group, Saint-Arnould, and Birra Moretti in 1996. We can see clear trends in a few of the cost categories. Marketing and merchandising expenses combined have been the largest portion of the operating costs 33.8...

Market To Book Ratio Heineken

Value Chain Heineken

Miller, owned by Philip-Morris, started a price war in 1997, and it is continuing. Price competition will force companies to drive down costs, leverage brand names, and rationalize excess capacity. There are two distinct strategies for brewers They can specialize by focusing on a specific link in the value chain or become a geographic integrator. The specialization strategy involves breaking the industry business system into product development, brewing, packaging,...

Calculate the Value Drivers

Exhibits 9.13 through 9.20 detail the historical financial analysis of Heineken. Exhibits 9.13 and 9.14 present Heineken's income statement and balance sheet for the years 1994 through 1998. Exhibits 9.15 through 9.17 detail the calculations of Heineken's NOPLAT, invested capital, and free cash flow for each year. Exhibit 9.18 shows the calculations of Heineken's economic profit. The remainder of the exhibits offer the backup calculations and ratios to be used for forecasting. In analyzing...

Risk I Q B Project

For comparison purposes, then, it is best to look at performance both with and without goodwill. Revaluation Reserves Each year, Heineken makes an adjustment to its balance sheet and equity called a ''revaluation reserve. The details of this adjustment are not disclosed though they are most likely due to foreign currency translation adjustments and fixed asset revaluations. We have treated these adjustments as non-operating cash flows. Some governments have agreed...

Making Value Happen

Most publicly traded companies today have a stated aim of creating value for their shareholders. The question for many managers is not ''Why should we create value but How can we create value This question translates into issues in a number of areas, such as How can we set targets that reinforce our overall goal of creating shareholder value How can we align our management processes with the goal of value creation How should we structure our incentive programs How can we promote a value...

Cash Is King

On October 1, 1974, the Wall Street Journal published an editorial lamenting the widespread focus on earnings per share as an indicator of value A lot of executives apparently believe that if they can figure out a way to boost reported earnings, their stock prices will go up even if the higher earnings do not represent any underlying economic change. In other words, the executives think they are smart and the market is dumb. . . . The market is smart. Apparently, the dumb one is the corporate...

Frameworks for Valuation

Dcf Valuation Statistic

In Part One, we described an overall framework for understanding what drives value and how managers can use these concepts to create value in their companies. In particular, we made the case that a company's value is driven by its ability to generate cash flow over the long term. Furthermore, a company's cash-flow generating ability and hence its value creation ability is driven by long-term growth and the returns that the company earns on invested capital relative to its cost of capital. Part...

Goodwill

We explicitly excluded goodwill, both the asset and the amortization, from the calculation of ROIC. In most cases, ROIC should be calculated both with and without goodwill. ROIC excluding goodwill measures the operating performance of the company and is useful for comparing operating performance across companies and for analyzing trends. It is not distorted by the price premiums paid for acquisitions made in building the company. ROIC including goodwill measures how well the company has used...

Heineken Case

To wrap up this and each of the next four chapters, we present a case study Heineken N.V.3 This case will illustrate the concepts from each of the chapters and provide a comprehensive integration of all the pieces of a valuation. The Netherlands-based Heineken is one of the largest beer companies in the world, and enjoys the second-largest market share, behind Anheuser-Busch. Its main brands are the popular Heineken and Amstel beers. In 1998, the last year used in our valuation, Heineken had...

Understanding the Drivers of Value

Value Driver Analysis

A company that has made a top-level decision to make value happen needs to understand what elements in its day-to-day operations, as well as in its major investment decisions, have the most impact on value. Properly done, the process of defining value drivers can help managers in three ways. First, it can help both business unit managers and their staff understand how value is created and maximized in the business. Second, it can help in prioritizing these drivers and thus in determining where...

Wiley Finance

Advanced Fixed-Income Valuation Tools, Narasimham Jegadeesh and Bruce Tuckman Buying and Selling Volatility, Kevin B. Connolly Chaos and Order in the Capital Markets New View of Cycles, Prices, and Market Volatility, Corporate Financial Distress and Bankruptcy, Second Edition, Edward I. Altman Credit Derivatives A Guide to Instruments and Applications, Janet Tavakoli Credit Risk Measurement New Approaches to Value at Risk and Other Paradigms, Anthony Currency Derivatives Pricing Theory, Exotic...

Surviving the Barrage of Value Metrics

We saw through Fred's story in Chapter 3 how companies create value and how it can be measured. In the real world, managers have been bombarded with advice about performance measures TRS, DCF, economic profit,1 EVATM, CFROI, ROIC, EPS, profit margin, and many others. But we think that the debate over which metric to use has come unstuck from the real purpose of metrics to help managers make value-creating decisions and to orient all company employees toward value creation. Attempts to compare...

Tom Copeland Tim Koller Jack Murrin

The valuation of a company Heineken from the outside, using publicly available information. Part Three Chapters 14 through 22 is devoted to valuation in more complex situations. We have included chapters on valuing high growth Internet companies, multibusiness companies, cyclical companies, banks, and insurance companies. Three chapters deal with issues related to valuation outside the United States valuing foreign subsidiaries, valuing companies outside the United States, and valuing companies...

Issues with TRS

Decision Trees Whitbread Plc

A performance measure must do more than simply record how much a stock goes up or down. It must cut through the noise of the market and provide an accurate picture of exactly how and why managers are creating value. Seen from this perspective, TRS has limitations. Many factors other than management performance drive share prices. During the one to three years that TRS is usually measured for the purpose of evaluating performance, the market as a whole or the industry sector in 2 This section is...

The Value Manager

Restructuring Hexagon

In Chapter 1, we argued that value creation is the ultimate measure of performance for a management team. This chapter explains, primarily through a case example, what it means to manage for maximum value creation in other words, to be a value manager. Becoming a value manager is not a mysterious process that is open to only a few. It does require, however, a different perspective from that taken by many managers. It requires a focus on long-run cash flow returns, not quarter-to-quarter changes...