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ABF305 Investment Management
Lecture 5
ABF305投资管理
第五讲
We left last week’s lecture with the question, which intrinsic value was correct?
我们留下了上周的讲座问题，哪个内在价值是正确的？
There is no one ‘correct’ value.
没有“正确的”价值
Several values arrive at a best estimate.
几个值到达最佳估计
This can be achieved by comparing valuation models, e.g.
这样就可以实现比较估值模型，如
Free Cash Flow Model.
自由现金流模型。
Price/Earnings Multiple or P/E ratio (the terms multiple and ratio are used interchangeably).
价格/市盈率P/ E比率（交替使用多个比例的条款）。
Price/Earnings Ratio
价格/盈利比率
On the basis of growth opportunities, the price/earnings (P/E) ratio indicates whether a firm is a good investment or not.
在增长机会的基础上，价格/收益比（P/ E）显示一个公司是否是好的投资。
A high P/E multiple indicates firms enjoy ample growth opportunities.
高P/ E倍数表示，公司享有庞大增长机会。
Specifically:
The Constant Growth model is denoted by:
If dividends are the earnings not reinvested. If E1 denotes the earnings per share and if ‘b’ denotes the plowback ratio. Then D1 can be replaced by E1 (1-b) in the above formula.
We already know that growth can be denoted by (ROE x b), i.e. the return on equity x the plowback ratio.
Replacing D1 and g in the constant growth model we get:
Rearranging the formula in terms of a price/earnings ratio:
We see from this formula that the price/earnings ratio is driven by the return on equity and the plowback.
Example:
If the return on equity increases, the P/E ratio increases.
If the plowback increases, the P/E ratio also increases, but only if the ROE exceeds k.
How is the ratio used?
It can be used as a multiplier to arrive at a firm’s value.
EPS1 x P/E = firm’s value:
So if a earnings per share is forecast to be $4.20 and the P/E ratio is 15, then the firm price is $63.
The firm price can be used in a multistage dividend discount model.
该公司的价格可以用在一个多阶段股利折现模型。
If you recall from last week’s lecture:
如果你还记得，从上周的演讲：
The price for 2011 which was determined by the constant growth dividend model can be replaced by the firm value as determined by the EPS x P/E ratio.
EPS倍P / E比率由2011年的价格，这是由不断增长股利模型可以取代公司价值。
The P/E can also be used to indicate potentially under-priced firms.
Rule of thumb……if the P/E ratio to firm growth is roughly equal to 1, then the firm is fairly priced.
If the P/E ratio is less than the firm growth rate, this may signal potential underpricing.
Textbook definition:
Price/Earnings ratio is the ‘number by which the expected earnings per share is multiplied to estimate a stock’s value; it is also known as the earnings multiplier’. (Reilly and Brown, ‘Investment Analysis and Portfolio Management’, 8th Edition).
Free Cash Flow valuation approach.
Alternative to the dividend discount model.
Can be used when the firm pays no dividends.
Underlying concept. The firm’s value depends on cash which is available after obligations have been met.
Two cash flow approaches:
两个现金流的方法：
Free cash flow for the firm (FCFF)
公司自由现金流（FCFF）
Free cash flow to equity holders (FCFE).
权益持有人自由现金流（FCFE）。
Both are derived from financial accounting data. Namely:
两者都来源于财务会计数据。即：
The income statement.
利润表。
The cash flow statement.
现金流量表。
Free cash flow for the firm (FCFF):
FCFF = EBIT (1-tc) + Depreciation – Capital expenditures – Increase in NWC
where EBIT = earnings before interest and taxes.
tc = the corporate tax rate.
NWC = net working capital.
Net Working Capital is determined as:
1. Decrease (increase) in accounts receivable.
2. Decrease (increase) in inventories.
3. Decrease (increase) in other current assets.
4. Increase (decrease) in accounts payable.
5. Increase (decrease) in other current liabilities.
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