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Un campo de tenis y yo con una raqueta jugando Un gran logro en en mi exepriencai priogesional
dobles en una cancha de arcilla uqe quedan cerca que fue mas bien compratidio con un eqeuipo
de mi casa y una pantalla viendo noticias Trbajo multidispcilinario fue la obtencin dela
economicas y faincnieras nacional y del mundo. buena proc ed un proeycto comercia y
El tenis implica mucha concentracin, persevancia penitenciario.
y fuerza mental para ganar a tus oponentes, Era un proeycto que se encargba de la
requiere de mucho entremaient y disicplina y infraestrucutra epoenitneciaria, disei y
estartegia, asi como un poco de habilidad conctruccion de un nuevo penal para la ciduad de
deportiva. En el tenis se prioriza mucho la precisin lima a cambio de recibir el terrno del penal san
un movimiento mal hehco o una tecnia mal Jorge para que le consosrico tnega el derecho de
empelada puede lelvar rpidamente a un error no la cosntruccion e implementacin de un proecy
forzado o una bola en una psoicion desfavorable tocomercial compuesto pro galaerias, vivienda
que de te deja expuesto ante el rival. El jugar en estabelcimeinto comerciale, y tiendas
parejas en dobles reqeuire de habildiads
adiconales que en singles, se encsita mayor Tanto el costo de la conturcion del neuvo penal(54)
corrodinaicon y comunaicon con tu compaero y el proecyo comecial(45) era de 100 MMde
conocerse perfectamente, saber como peinsa y doalres en un palzo de ejcucion de 3 aos., .
cuales son sus fortaleza y debildiades y como Los beneficios del estado eran obtener un nuevo
podemos complementarnos penal totalemnte eqeuipo y con mayor segurairad,
En una mepresa como el A la cual eta fromada la renovaicon urbana en elc ecrdao delima, una
por un grupo de profesionales de gran nivel y contribucin a la formalizaion del comrcio, y la
reputaicon en los servicios financieros y en la apmliaicond e vacante de reclusos
amplia trayectoria y posicionamiento que ha tneido Deje mi enteorio trbajo porque sent que quera
el grupo como organizaicion tanto en el mecrado trbajr en una mepresa una consultora mas grande
nacional e internacional creo que precisa de varias con mas proyectos, responsabilidades y
de estas habildiades. Y mas especifiacmente en las aspiraicones de lnea de carrera.
reas que me gustaria dedesarrollar que son las
finanzas en espcial en als reas de inversiones y * Cul es la definicin de xito en sus trminos?
CI&B creo que la cruva de aprednizaje es muy alta
Hacerclo que mas tegusta y hacerlo lo mejor
y empinada lo cual indica que no solo se aprende
posible
bastante sino tambin rpidamente. En estas reas
me gustara parender bastante sobre vlaoriziacon
de empresa, los procesos de compra y de venta de Preguntas tcnicas en una entrevista en banca
de inversin
empresas o acciones y manejod e potrtafolisod e
inversin, admeas otro aspecto es creo que puedo
Qu es un DCF? Explcame como haras uno.
crecer tanto en la empresa profesionalmente como
persona en cuanto mis habildiades y
Cules son los diferente mtodos de
conocmientos, con capcitaciones, ganar
valoracin?
experiencia en tranciones y ver los posible
s tendencioan fuutras de als industria y negociaos
Cul es la diferencia entre un LIFO y un
y por ultimo una oportunidad de lnea de carrera
FIFO?
asumiendo mas responsabilidades
Ganas de aprender Cundo emitiras deuda y cundo acciones?
The second approach involves -If the company is lower than the peer
determining a comparable group of average, the company is undervalued.
companies that are in the same Used together, intrinsic and relative
industry with similar operational, valuation models provide a ballpark
growth, risk, and return on capital measure of valuation that can be used to
characteristics. Truly identical help analysts gauge the true value of a
companies of course do not exist, but company.
you should attempt to find as close to This valuation metric is calculated by
comparable companies as possible. dividing a company's "enterprise value" by
Calculate appropriate industry
multiples. Apply the median of
its earnings before interest expense, taxes,
of equity to its sensitivity to the overall
depreciation and amortization (EBITDA).
market (see WSPs DCF module for a
detailed analysis of calculating the cost
Overvalued undervalued of equity).
Enterpreise value
multiple=enterprise
3. What is typically higher the
value/EBITDA
2. What is the appropriate cost of debt or the cost of
discount rate to use in an equity?
unlevered DCF analysis?
The cost of equity is higher than the
Since the free cash flows in an unlevered cost of debt because the cost
DCF analysis are pre-debt is a ccompnay associated with borrowing debt
cash flow before taking interest (interest expense) is tax deductible,
payments into account.(think of creating a tax shield. Additionally, the
unlevered cash flows as the companys cost of equity is typically higher because
cash flows as if it had no debt so no unlike lenders, equity investors are
interest expense, and no tax benefit not guaranteed fixed payments, and
from that interest expense), the cost are last in line at liquidation.
of the cash flows relate to both the
lenders and the equity providers of 4. How do you calculate the cost
capital. Thus, the discount rate is the
of equity?
weighted average cost of capital to
There are several competing models for
all providers of capital (both debt and
estimating the cost of equity, however,
equity).
the capital asset pricing model
in the market as the yield on debt the street. The CAPM links the
with equivalent risk, while the cost expected return of a security to its
Firm cash flows are prior to any debt and debt equivalents excess
payments but after the firm has cash). For more on this equation see
reinvested earnings to grow its assets. WSPs article
The discount rate used for these cash flows
at www.wallstreetprep.com/blog/.
reflects the cost of equity and debt, also known
as the weighted average cost of capital
EBIT, EBITDA, unlevered cash flow, and
(WACC).
revenue multiples all have enterprise
Free Cash Flow to Firm = EBIT*(1-tax rate) value as the numerator because the
- CapEx +(Depreciation + Amortization) -
denominator is an unlevered (pre-
Change in Non-Cash Working Capital
debt) measure of profitability.
In a DCF model the present value of equity Conversely, EPS, after-tax cash flows, and
cash flows reflects only the value of equity
book value of equity all have equity value
claims on the firm where as firm cash flows
as the numerator because the
reflect the value of all claims on the firm.
denominator is levered or post-debt.
How to Convert from Firm to Equity Cash
Flows 8. How would you value a
company with negative historical
This calculation is very simple. To get from firm
cash flow?
value to equity value simply subtract out the
market value of all debt and all other non-
Given that negative profitability will
equity claims in the firm.
make most multiples analyses
Present Value of Debt - Market Value of
meaningless, a DCF valuation
Debt = Present Value of Equity
approach is appropriate here.
9. When should you value a Free Cash Flow to Equity = Net Income -
company using a revenue CapEx + Depreciation - Change in Non-
multiple vs. EBITDA? Cash Working Capital +(New Debt Issues -
Debt Payments)
Companies with negative profizts and
Firm cash flows are prior to any debt payments
EBITDA will have meaningless
but after the firm has reinvested earnings to
EBITDA multiples. As a result, Revenue grow its assets. The discount rate used for
multiples are more insightful. these cash flows reflects the cost of equity and
debt, also known as the weighted average cost
transactions
treasury share
with owners,
transactions
showing
They can omit the
separately
statement of changes in
contributions
equity if the entity has no
by and
owner investments or
distributions
withdrawals other than
to owners an
dividends, and elects to
d changes in
present a combined
ownership
statement of
interests in
comprehensive income
subsidiaries
and retained earnings.
that do not
result in a
loss of -inventry costs: GAAP is rules
control based.
-GAAPS rules allow for
LIFO(UEPS), FIFO(PEPS) and
However, the amount of
the Weighted average cost
dividends recognised as
method(WACM)
distributions, and the
GAAP doesno allow fro
related amount per
inventary reversals, while
share, may be presented
IFRS permits tthem under
in the notes instead of
centain conditions.
presenting in the
-GAAP requires financial
statement of changes in
statments to include a
equity.
statment of comphensive
income.
However, the amount of
dividends recognised as
The diferenc between
distributions, and the
comprenhension cincome
related amount per
and other comprehensive
share, may be presented
income.
in the notes instead of
In financial accounting
presenting in the
income is brken down in a
statement of changes in
multitud of ways ,and firmas
equity. (IAS1.107)
have som latitud on when to
recognize an drprot their
For small and medium earnings.
enterprises (SMEs), the
statement of changes in
-to compensate for this, the more traitional means sucha as
Finantial accounting
standars board(FASB) has net operating income.
firms collect and report There are 4 spruces of non-
indromation that helps to owner changes to owner
provide perspective for
investors and analysist. eqeuity. They are:
2 such measumenret 1)adjustments to markeatble
comphensive income and
securities the compnay holds for
other comphensive income.
Comprehensive Income sale
10 Changes in
the revaluation surplus
Other Comprehensive Income
[IAS 16 and IAS 38] Aaccount like revenues,
epenser gains an dlooses that
While the AOCI balance is
presented in Equity section of haven no yet relaized(not
the balance sheet, the annual sold)
accounting entries, as flows, are Ej: a prtofoilio of bondsa hath has
presented sometimes in not been sold. Gains and losses
a Statement of Comprehensive
Income.
from changng value of the bonds
cannot be realized until they are
This statement expands the sold. So the intemrim adjsutment
traditional Income are recognized in other
Statement beyond Earnings to comprehnesive income.
include OCI in order to present Other comprehensive income
Comprehensive Income.
is a catch-all for all of the
Under the revised IAS 1, all non- items that cannot be included
owner changes in equity in typical profit and loss
(comprehensive income) must be
presented either in one Statement calculations. Examples of the
of comprehensive income or in two types of changes captured by
statements (a separate income
other comprehensive income
statement and a statement of
comprehensive income) include:
cash flow to
difference between the companys most current
assets and liabilities. These are short-
term capital requirements related to
equity (FCFE)
immediate operations
really tell an
analyst?
Investors are keen to find the right set of metrics While any such calculation is purely an indicator
to evaluate the performance and likely growth of rather than a surefire way of working out the next
a company. Free cash flow to equity (FCFE) is big investment, knowing how to calculate FCFE
one of the many ways of assessing company can help avoid companies that do not have
value. It is often used as an alternative to the sufficient resources left to grow into the future.
dividend discount model, as that model has
Other equations include: Free cash flow (FCF) is the amount of cash that
a company has left over after it has paid all of
FCFF = Cash Flow from Operations + Interest its expenses, including net capital
Expense x ( 1 - Tax Rate ) - Capex expenditures. Net capital expenditures are
what a company needs to spend annually to
FCFF = earnings before interest and taxes x (1 - acquire or upgrade physical assets such as
tax rate) + depreciation - long-term investments - buildings and machinery to keep operating.
investments in working capital
FCF=CASflow from operating activities-net caital
FCFF = earnings before interest, tax,
expenditures(total apital expenditure)-after tax
depreciation and amortization x (1 - tax rate) +
procedes from sale of assets.
depreciation x tax rate - long-term investments -
investments in working capital The FCF measure gives investors an idea of a
company's ability to pay down debt, increase
Benefits of Using FCFF savings and increase shareholder value, and
Free cash flow is arguably the most important FCF is used for valuation purposes.
financial indicator of the value of a company's
stock. The value, and therefore the price, of a Free Cash Flow to the Firm (FCFF)
stock is considered to be the summation of the
company's expected future cash flows. However, Free cash flow to the firm is the cash available to
stocks are not always accurately priced. all investors, both equity and debt holders. It can
Understanding a company's FCFF allows be calculated using Net Income or Cash Flow
investors to test whether a stock is fairly valued. from Operations (CFO)
FCFF also represents a company's ability to
The calculation of FCFF using CFO is similar to
pay out dividends, conduct share repurchases or
the calculation of FCF. Because FCFF is the
cash flow allocated to all investors including debt WCInv = Working Capital Investments
holders, the interest expense which is cash
available to debt holders must be added back.
ree Cash Flow to Equity (FCFE), the cash
The amount of interest expense that is available
available to stockholders can be derived from
is the after-tax portion, which is shown as the
FCFF. FCFE equals FCFF minus the after-tax
interest expense multiplied by 1-tax rate [Int x (1-
interest plus any cash from taking on debt (Net
tax rate)]. .
Borrowing). The formula equals:
his makes the calculation of FCFF using CFO
equal to:
FCFE=FCFF-(inte*(1-tax rate))+net bprrowing
Where:
Read more: Free Cash Flow - CFA Level 1 |
CFO = Cash Flow from Operations
Investopedia http://www.investopedia.com/exam-
Int = Interest Expense
guide/cfa-level-1/financial-statements/free-cash-
FCInv = Fixed Capital Investment (total capital
flow.asp#ixzz4ZXjau4EO
expenditures)
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This formula is different for firm's that follow Read more: Free Cash Flow - CFA Level 1 |
IFRS. Firm's that follow IFRS would not add back Investopedia http://www.investopedia.com/exam-
interest since it is recorded as part of financing guide/cfa-level-1/financial-statements/free-cash-
activities. However, since IFRS allows flow.asp#ixzz4ZXjObh66
dividends paid to be part of CFO, the Follow us: Investopedia on Facebook
dividends paid would have to be added back.
Operating Profit
one using CFO except that it includes the items
that differentiate Net Income from CFO. To arrive
at the right FCFF, working capital investments
After Tax
must be subtracted and non-cash charges must
be added back to produce the following formula:
NOPAT
FCFF= NI+NCC+(inters*(1-tax rate))- FCinv-
WCinv
Where:
NI = Net Income Net operating profit after tax (NOPAT) is a
NCC = Non-cash Charges (depreciation and company's potential cash earnings if
amortization) its capitalization were unleveraged that is, if it
Int = Interest Expense had no debt. NOPAT is frequently used
FCInv = Fixed Capital Investment (total capital in economic value added (EVA) calculations. It is
expenditures) calculated as: NOPAT = Operating Income x (1 -
Tax Rate). NOPAT is a more accurate look at Interpretation and Uses
operating efficiency for leveraged companies,
In addition to providing analysts with a measure
and it does not include the tax savings many
of core operating efficiency without the influence
companies get because of existing debt.
of debt, mergers and acquisitions analysts use
net operating profit after tax. They use this to
BREAKING DOWN 'Net calculate free cash flow to firm (FCFF) , which
Operating Profit After Tax - equals net operating profit after tax, minus
changes in working capital. They also use it in
NOPAT'
the calculation of economic free cash flow to firm
Analysts look at many different measures of (FCFF), which equals net operating profit after
performance when assessing a company as an tax minus capital. Both are primarily used by
investment. The most commonly used measures analysts looking for acquisition targets, since
of performance are sales and net income growth. the acquirer's financing will replace the current
Sales provide a top-line measure of performance, financing arrangement. Another way to calculate
but they do not speak to operating efficiency. Net net operating profit after tax is net income plus
income includes operating expenses, but also net after-tax interest expense, or net income plus
includes tax savings from debt. Net operating net interest expense, multiplied by 1, minus the
profit after tax is a hybrid calculation that allows tax rate.
analysts to compare company performance
without the influence of leverage. In this way, it is
a more accurate measure of pure operating
What is the difference
efficiency.
between earnings and profit?
Net Operating Profit After Tax Earnings, specifically retained earnings, and
Example profit are often used as synonyms in corporate
finance, although they are different terms and
Net operating profit after tax is calculated as
have different meanings. These differences
operating income multiplied by 1, minus the tax
largely center around accounting treatment. A
rate. Operating income is also referred to
company's earnings are equal to revenue
as earnings before interest and taxes, or EBIT.
less costs of production over a given period of
For example, if EBIT is $10,000 and the tax rate
time. Profit is equal to total revenue less all
is 30%, the calculation is $10,000 multiplied by 1
expenses. In the right context, these could be
minus .3, or .7, which equals $7,000. This is an
equal to each other, although that is rare. Big
approximation of after-tax cash flows without the
gaps between earnings and profits might be a
tax advantage of debt. Note that if a company
sign the company spends too much time and
does not have debt, net operating profit after tax
money on unproductive activity.
is the same as net income after tax. When
calculating net operating profit after tax, analysts
like to compare against similar companies in the Earnings Vs. Profit: An Example
same industry, because some industries have Consider an example where a toy manufacturer
higher or lower costs than others. sells $10,000 worth of toys in one week. It did not
make any money from other sources over the
Net Income, Net Profit, Net
same week, so its total revenue is $10,000.
Earnings
If it cost $7,000 to manufacture those toys, the
earnings for the company are $3,000 for the Definition:
week, or $10,000 - $7,000. This does not take
into account other fixed costs, however. The Net income is the bottom line of the income
company may have paid interest on some debt, statement. It is what is left over from revenues
had to pay an accountant or fix a toilet at its after all costs and expenses are subtracted.
Revenue cost of goods sold (for
facility. Suppose the company incurred $1,800
manufacturing businesses, or cost of services
worth of these overhead expenses during the for service businesses), operating expenses,
week. Now, its weekly profit is only $1,200 even taxes, interest, one-time charges, non-cash
though earnings show $3,000. expenses such as depreciation and
amortization, and any other costs not included
This tells the company it needs to focus on in operating profit leaves the net profit.
reducing miscellaneous costs. It is manufacturing
Net profit, net income, and net earnings all
and selling toys at a 30% margin, but it has to
mean the same thing.
immediately sink a full 60% of its earnings into
other expenses. Sign up for our online financial statement
training and get the income statement
Consider the ramifications of a company, or training you need.
investor, that ignores the difference between
earnings and profit. If the toys had only sold for a Example:
15% margin instead of 30%, those miscellaneous
expenses would have resulted in a net loss for Here is a sample income statement to show
how net profit might be reflected on the
the week but earnings still showed a $1,500 gain;
income statement of a small, hypothetical
this is a very different picture. company. Amounts shown in thousands.
Free Cash Flow to Equity [FCFE]:
This is the net amount of cash left for a company's
equity shareholders after all expenses, taxes,
investments and debt payments.
FCFE = FCFF - debt repayment
The Working
Another piece of conventional wisdom that needs
correcting is the use of the current ratio and, its
close relative, the acid test or quick ratio.
Capital Position
Contrary to popular perception, these analytical
tools don't convey the evaluative information
about a company's liquidity that an investor
needs to know. The ubiquitous current ratio, as
For investors, the strength of a
an indicator of liquidity, is seriously flawed
company's balance sheet can be evaluated by
because it's conceptually based on a company's
examining three broad categories of
liquidation of all its current assets to meet all of
investment quality: working
its current liabilities. In reality, this is not likely to
capital adequacy, asset
occur. Investors have to look at a company as
performance and capitalization structure. In
a going concern. It's the time it takes to convert a
this article, we'll start with a comprehensive
company's working capital assets into cash to
look at how best to evaluate the investment
pay its current obligations that is the key to its
quality of a company's working capital position. In
liquidity. In a word, the current ratio is misleading.
simple terms, this entails measuring
the liquidity and managerial efficiency related to a A simplistic, but accurate, comparison of two
company's current position. The analytical tool companies' current positions will illustrate the
employed to accomplish this task will be a weakness in relying on the current ratio and a
company's cash conversion cycle. working capital number as liquidity indicators:
Working Capital
ingredients sit in inventory for a month, company
cash is tied-up and can't be used to grow the
spaghetti business. Even worse, the company
Works
can be left strapped for cash when it needs to
pay its bills and make investments. Working
capital also gets trapped when customers do not
pay their invoices on time or suppliers get paid
Cash is the lifeline of a company. If this lifeline too quickly or not fast enough.
deteriorates, so does the company's ability to
fund operations, reinvest and meet capital The better a company manages its working
requirements and payments. Understanding a capital, the less the company needs to borrow.
company's cash flow health is essential to Even companies with cash surpluses need to
making investment decisions. A good way to manage working capital to ensure that those
surpluses are invested in ways that will generate
suitable returns for investors. (Get some more Rising DSO is a sign of trouble because it shows
background information, in The Working Capital that a company is taking longer to collect its
Position.) payments. It suggests that the company is not
going to have enough cash to fund short-term
Not All Companies are the Same obligations because the cash cycle is
Some companies are inherently better placed lengthening. A spike in DSO is even more
than others. Insurance companies, for instance, worrisome, especially for companies that are
receive premium payments up front before having already low on cash.
to make any payments; however, insurance
companies do have unpredictable cash outflow The inventory turnover ratio offers another good
as claims come in. instrument for assessing the effectiveness of
WCM. The inventory ratio shows how fast/often
Normally, a big retailer like Wal- companies are able to get their goods completely
Mart (NYSE:WMT) has little to worry about when off the shelves. The inventory ratio looks like this:
it comes to accounts receivable: customers pay
for goods on the spot. Inventories represent the Cost of Goods Sold (COGS)/Inventory
biggest problem for retailers; as such, they must
Broadly speaking, a high inventory turnover
perform rigorous inventory forecasting or they
ratio is good for business. Products that sit on the
risk being out of business in a short time.
shelf are not making money. Granted, an
increase in the ratio can be a positive sign,
Timing and lumpiness of payments can pose
indicating that management, expecting sales to
serious troubles. Manufacturing companies, for
increase, is building up inventory ahead of time.
example, incur substantial upfront costs for
materials and labor before receiving payment.
For investors, a company's inventory turnover
Much of the time they eat more cash than they
ratio is best seen in light of its competitors. In a
generate. (Find out how to do an analysis,
given sector where, for instance, it is normal for a
in Evaluating A Company's Capital Structure.)
company to completely sell out and restock six
times a year, a company that achieves a turnover
Evaluating Companies
ratio of four is an underperformer.
Investors should favor companies that place
emphasis on supply-chain management to
Computer giant and stock
ensure that trade terms are optimized. Days-
market champion, Dell (Nasdaq:DELL),
sales outstanding, or DSO for short, is a good
recognized early that a good way to
indication of working capital management
bolster shareholder value was to notch up
practices. DSO provides a rough guide to the
working capital management. The company's
number of days that a company takes to collect
world-class supply-chain management system
payment after making a sale. Here is the simple
ensures that DSO stays low. Improvements in
formula:
inventory turnover increase cash flow, all but
eliminating liquidity risk, leaving Dell with more
Receivables/ Annual Sales/365 Days
cash on the balance sheet to distribute to
shareholders or fund growth plans. (Read more, we'll look at evaluating balance sheet strength
in Don't Get Burned By The Burn Rate.) based on the composition of a company's capital
structure.
Dell's exceptional WCM certainly exceeds those
of the top executives who do not worry enough A company's capitalization (not to be confused
about the nitty-gritty of working capital with market capitalization) describes the
management. Some CEOs frequently see composition of a company's permanent or long-
borrowing and raising equity as the only way to term capital, which consists of a combination of
boost cash flow. Other times, when faced with a debt and equity. A healthy proportion of equity
cash crunch, instead of setting straight inventory capital, as opposed to debt capital, in a
turnover levels and reducing DSO, these company's capital structure is an indication of
management teams pursue rampant cost financial fitness.
cutting and restructuring that may later aggravate
problems. Clarifying Capital Structure
Conclusion Related Terminology
Cash is king - especially at a time when The equity part of the debt-equity relationship is
fundraising is harder than ever. Letting it slip the easiest to define. In a company's capital
away is an oversight that investors should not structure, equity consists of a company's
forgive. Analyzing a company's working capital common and preferred stock plus retained
can provide excellent insight into how well a earnings, which are summed up in the
company handles its cash, and whether it is likely shareholders' equity account on a balance sheet.
to have any on hand to fund growth and This invested capital and debt, generally of the
contribute to shareholder value. (Read more, in Z long-term variety, comprises a company's
Marks The End.) capitalization, i.e. a permanent type of funding to
support a company's growth and related assets.
balance sheet can be evaluated by three broad research services, there is no universal
measurements: working capital adequacy; asset For many analysts, the debt component in a
performance; and capital structure. In this article, company's capitalization is simply a balance
sheet's long-term debt. This definition is too
simplistic. Investors should stick to a stricter operating and debt liabilities during periods of
interpretation of debt where the debt component adverse economic conditions. Lastly, a company
of a company's capitalization should consist of in a highly-competitive business, if hobbled by
the following: short-term borrowings (notes high debt, may find its competitors taking
payable); the current portion of long-term debt; advantage of its problems to grab more market
long-term debt; two-thirds (rule of thumb) of the share.
principal amount of operating leases; and
redeemable preferred stock. Using a Unfortunately, there is no magic proportion of
comprehensive total debt figure is a prudent debt that a company can take on. The debt-
analytical tool for stock investors. equity relationship varies according to industries
involved, a company's line of business and its
It's worth noting here that both international and stage of development. However, because
U.S. financial accounting standards boards are investors are better off putting their money into
proposing rule changes that would treat operating companies with strong balance sheets, common
leases and pension "projected-benefits" as sense tells us that these companies should have,
balance sheet liabilities. The new proposed rules generally speaking, lower debt and higher equity
certainly alert investors to the true nature of levels.
these off-balance sheet obligations that have all
the earmarks of debt. Capital Ratios and Indicators
In general, analysts use three ratios to assess
Is There an Optimal Debt-Equity the financial strength of a company's
Relationship? capitalization structure. The first two, the so-
called debt and debt/equity ratios, are popular
In financial terms, debt is a good example of the
measurements; however, it's the capitalization
proverbial two-edged sword. Astute use
ratio that delivers the key insights to evaluating a
of leverage (debt) increases the amount of
company's capital position.
financial resources available to a company for
growth and expansion. The assumption is that
The debt ratio compares total liabilities to total
management can earn more on borrowed funds
assets. Obviously, more of the former means less
than it pays in interest expense and fees on these
equity and, therefore, indicates a more leveraged
funds. However, as successful as this formula
position. The problem with this measurement is
may seem, it does require that a company
that it is too broad in scope, which, as a
maintain a solid record of complying with its
consequence, gives equal weight to operational
various borrowing commitments.
and debt liabilities. The same criticism can be
applied to the debt/equity ratio, which compares
A company considered too highly-leveraged (too
total liabilities to total shareholders' equity.
much debt versus equity) may find its freedom of
Current and non-current operational liabilities,
action restricted by its creditors and/or may have
particularly the latter, represent obligations that
its profitability hurt as a result of paying
will be with the company forever. Also, unlike
high interest costs. Of course, the worst-case
debt, there are no fixed payments of principal or
scenario would be having trouble meeting
interest attached to operational liabilities.
The capitalization ratio (total debt/total Lastly, credit ratings are formal risk evaluations
capitalization) compares the debt component of a by credit-rating agencies Moody's, Standard &
company's capital structure (the sum of Poor's, Duff & Phelps and Fitch of a
obligations categorized as debt + total company's ability to repay principal and interest
shareholders' equity) to the equity component. on debt obligations, principally bonds
Expressed as a percentage, a low number is and commercial paper. Here again, this
indicative of a healthy equity cushion, which is information should appear in the footnotes.
always more desirable than a high percentage of Obviously, investors should be glad to see high-
debt. quality rankings on the debt of companies they
are considering as investment opportunities
Additional Evaluative Debt- and be wary of the reverse.
Equity Considerations
Companies in an aggressive acquisition mode
can rack up a large amount of
Introduction To
Dividends
purchased goodwill in their balance sheets.
Investors need to be alert to the impact
of intangibles on the equity component of a
company's capitalization. A material amount of
When a company earns profits from
intangible assets need to be considered carefully
operations, management can do one of two
for its potential negative effect as a deduction (or
things with those profits. It can choose to
impairment) of equity, which, as a consequence,
retain them - essentially reinvesting them into
will adversely affect the capitalization ratio. the company with the hope of creating more
profits and thus further stock appreciation.
Funded debt is the technical term applied to the
The alternative is to distribute a portion of the
portion of a company's long-term debt that is
profits to shareholders in the form of
made up of bonds and other similar long-term, dividends. Management can also opt to
fixed-maturity types of borrowings. No matter how repurchase some of its own shares - a move
problematic a company's financial condition may that would also benefit shareholders.
be, the holders of these obligations cannot
demand payment as long as the company pays A company must keep growing at an above-
the interest on its funded debt. In contrast, bank average pace to justify reinvesting in itself
debt is usually subject to acceleration clauses rather than paying a dividend. Generally
and/or covenants that allow the lender to call its speaking, when a company's growth slows, its
loan. From the investor's perspective, the greater stock won't climb as much, and dividends will
the percentage of funded debt to total debt be necessary to keep shareholders around.
disclosed in the debt note in the notes to financial This growth slowdown happens to virtually all
statements, the better. Funded debt gives a companies after they attain a large market
capitalization. A company will simply reach a
company more wiggle room.
size at which it no longer has the potential to
grow at annual rates of 30-40% like a small
cap, regardless of how much money is
plowed back into it. At a certain point, the law dividend distribution. Assume for the moment
of large numbers makes a mega- that ABC Corporation was purchased at
cap company and growth rates that $100/share, which implies a $10,000 total
outperform the market an impossible investment. Profits at the ABC Corporation
combination. In this section, we'll take a were unusually high so the board of directors
deeper look at the different types of dividends agrees to pay its shareholder $10 per share
and the mechanics of dividend payments; annually in the form of a cash dividend. So,
how companies establish dividend policy and as an owner of ABC Corporation for a year,
the different types of dividend policies; the your continued investment in ABC Corp
reasons why companies and investors might should give us $1,000 in dividend dollars. The
prefer higher, lower or no dividend payments; annual yield is the total dividend amount
and share repurchases, stock splits and stock ($1,000) divided by the cost of the stock
dividends as an alternative to cash dividends. ($10,000) which gives us in percentage
Cash
terms, 10%. If the 100 shares of ABC
Corporation were purchased at $200 per
share, the yield would drop to 5%, since 100
Dividends And
shares now cost $20,000, or your original
$10,000 only gets you 50 shares instead of
100. If the price of the stock moves higher,
Dividend
then dividend yield drops and vice versa. The
Mechanics of Dividends
Do dividend-paying stocks make a good
Payment
overall investment? Dividends are derived
from a company's profits, so it is fair to
assume that dividends are generally a sign of
financial health. From an investment strategy
perspective, buying established companies
A cash dividend is money paid to with a history of good dividends adds stability
stockholders, normally out of the corporation's to a portfolio. Your $10,000 investment in
current earnings or accumulated profits. Not ABC Corporation, if held for one year, will be
all companies pay a dividend. Usually, the worth $11,000, assuming the stock price after
board of directors determines if a dividend is one year is unchanged. Moreover, if ABC
desirable for their particular company based Corporation is trading at $90 share a year
upon various financial and economic factors. after you purchased for $100 a share, your
Dividends are commonly paid in the form of total investment after receiving dividends still
cash distributions to the shareholders on a breaks even ($9,000 stock value + $1,000 in
monthly, quarterly or yearly basis. All dividends).
dividends are taxable as income to the
recipients. Herein lies the appeal to buying stocks with
dividends: they help cushion declines in
Dividends are normally paid on a per-share actual stock prices, and they also present an
basis. If you own 100 shares of the ABC opportunity for stock price
Corporation, the 100 shares is your basis for appreciation coupled with the steady stream
of income that dividends provide. with extraordinarily high yields. As we have
learned, if a company's stock price continues
This is why many investing legends such to decline, its yield goes up. Many rookie
as John Bogle, Warren Buffett and Benjamin investors get teased into purchasing a stock
Graham all espouse the virtues of buying just on the basis of a potential juicy dividend.
stocks that pay a dividend as a critical part of However, there is no specific rule of thumb in
the investment return of an asset. (Discover relation to how much is too much in terms of a
the issues that complicate these payouts for dividend payout.
investors Dividend Facts You May Not Know.)
The average dividend yield on the S&P
Risks to Dividends 500 companies that pay a dividend historically
During the financial meltdown in 2008-2009, fluctuates somewhere between 2-5%,
all of the major banks either slashed or depending on market conditions. In general, it
eliminated their dividend payouts. These pays to do your homework on stocks yielding
companies were known for consistent, stable more than 8% to find out what is truly going
dividend payouts each quarter for hundreds of on with the company. Doing this due
years, yet despite their storied history, the diligence will help you decipher those
dividends were cut. companies that are truly in financial shambles
from those that are temporarily out of favor
The lesson is that dividends are not and therefore present a good investment. (To
guaranteed and are subject read more on this subject, see Why
to macroeconomic as well as company- Dividends Matter, How Dividends Work For
specific risks. Another potential downside to Investors and 6 Common Misconceptions
investing in dividend-paying stocks is that About Dividends.)
companies that pay dividends are not usually
high growth leaders. There are a few How Companies Pay Dividends
exceptions, but high-growth companies
usually do not pay dividends to shareholders Dividend payouts follow a set procedure. To
even if they have significantly outperformed understand it, first we'll define the following
over the vast majority of all stocks over the terms:
last five years. Growth companies tend to
spend more dollars on research and 1. Declaration Date
development, capital expansion, retaining The declaration date is the day the company's
talented employees and/or mergers and board of directors announces approval of the
acquisitions, which leaves them with little to dividend payment.
no money to spend on dividends.
2. Ex-Dividend Date
For these companies, all earnings are The ex-dividend date is the date on which
considered retained earnings and are investors are cut off from receiving a dividend.
reinvested back into the company instead of If, for example, an investor purchases a stock
rewarding loyal shareholders. on the ex-dividend date, that investor will not
receive the dividend. This date is two
It is equally important to beware of companies business days before the holder-of-record
date. mails the dividend checks to the holders of
record.
The ex-dividend date is important because
from this date forward, new stockholders will
Dividend
not receive the dividend, and the stock price
reflects this fact. For example, on and after
the ex-dividend date, a stock usually trades at
Policy
a lower price as the stock price adjusts for the
dividend that the new holder will not receive.
3. Holder-of-Record Date
Dividend policy is the set of guidelines a
The holder-of-record (owner-of-record) date is
company uses to decide how much of its
the date on which the stockholders who are
earnings it will pay out to shareholders. Some
eligible to receive the dividend are
evidence suggests that investors are not
recognized.
concerned with a company's dividend policy
since they can sell a portion of their portfolio
(Understanding the dates of the dividend
of equities if they want cash. This evidence is
payout process can be tricky. We clear up the
called the "dividend irrelevance theory," and it
confusion in Declaration, Ex-Dividend and
essentially indicates that an issuance of
Record Date Defined.)
dividends should have little to no impact on
stock price. That being said, many companies
4. Payment Date
do pay dividends, so let's look at how they do
Last is the payment date, the date on which
it.
the actual dividend is paid out to the
stockholders of record.
There are three main approaches to
dividends: residual, stability or a hybrid of the
Example: Dividend Payment
two.
Suppose Newco would like to pay a dividend
to its shareholders. The company would
Residual Dividend Policy
proceed as follows:
Companies using the residual dividend policy
choose to rely on internally
1. On Jan. 28, the company declares it will
generated equity to finance any new projects.
pay its regular dividend of $0.30 per share to
As a result, dividend payments can come out
holders of record as of Feb. 27, with payment
of the residual or leftover equity only after all
on Mar. 17.
project capital requirements are met. These
2. The ex-dividend date is Feb. 23 (usually
companies usually attempt to maintain
four days before of the holder-of-record date).
balance in their debt/equity ratios before
As of Feb. 23, new buyers do not have a right
making any dividend distributions, deciding on
to the dividend.
dividends only if there is enough money left
3. At the close of business on Feb. 27, all
over after all operating and expansion
holders of Newco's stock are recorded, and
expenses are met.
those holders will receive the dividend.
4. On Mar. 17, the payment date, Newco
For example, let's suppose that a company
named CBC has recently earned $1,000 and of residual earnings, the model is known as
has a strict policy to maintain a debt/equity the "residual-dividend model."
ratio of 0.5 (one part debt to every two parts
of equity). Now, suppose this company has a A primary advantage of the dividend-residual
project with a capital requirement of $900. In model is that with capital-projects budgeting,
order to maintain the debt/equity ratio of 0.5, the residual-dividend model is useful in
CBC would have to pay for one-third of this setting longer-term dividend policy. A
project by using debt ($300) and two-thirds significant disadvantage is that dividends may
($600) by using equity. In other words, the be unstable. Earnings from year to year can
company would have to borrow $300 and use vary depending on business situations. As
$600 of its equity to maintain the 0.5 ratio, such, it is difficult to maintain stable earnings
leaving a residual amount of $400 ($1,000 - and thus a stable dividend. While the
$600) for dividends. On the other hand, if the residual-dividend model is useful for longer-
project had a capital requirement of $1,500, term planning, many firms do not use the
the debt requirement would be $500 and the model in calculating dividends each quarter.
equity requirement would be $1,000, leaving
zero ($1,000 - $1,000) for dividends. If any Dividend Stability Policy
project required an equity portion that was The fluctuation of dividends created by the
greater than the company's available levels, residual policy significantly contrasts with the
the company would issue new stock. certainty of the dividend stability policy. With
the stability policy, quarterly dividends are set
Typically, this method of dividend payment at a fraction of yearly earnings. This policy
creates volatility in the dividend payments that reduces uncertainty for investors and
some investors find undesirable. provides them with income.
Real-World
gain. According to the proponents of the no-
dividend policy, investors benefit more in the
long run from the company's undertaking
Factors
more projects, repurchasing its own shares,
acquiring new companies and profitable
assets, and reinvesting in financial assets.
Affecting
(Keep reading about capital gains in Tax
Effects On Capital Gains.)
Dividend
A third argument in favor of low dividends is
the high cost to a firm of issuing new stock. In
other words, to avoid the need to raise money
Payouts
through the issuance of new stock, which is
expensive, firms should retain most or all of
their earnings and pay little to no dividends to
investors.
Real-World Factors Affecting Low
Dividend Payouts Real-World Factors Affecting High
As we mentioned earlier, some financial Dividend Payouts
analysts feel that the consideration of In opposition to these three arguments is the
a dividend policy is irrelevant. They contend idea that a high dividend payout is important
that investors have the ability to create for investors because dividends provide
"homemade" dividends by adjusting their certainty about the company's financial well-
personal portfolios to reflect their own being; dividends are also attractive for
preferences. For example, investors looking investors looking to secure current income.
for a steady stream of income are more likely
to invest in bonds (in which interest payments In addition, there are many examples of how
don't change) than in a dividend-paying stock the decrease and increase of a dividend
(in which value can fluctuate). Because their distribution can affect the price of a security.
Companies that have a long-standing history the decision to the investor. A stockholder can
of stable dividend payouts would be choose to tender his shares for repurchase,
negatively affected by lowering or omitting accept the payment and pay the taxes. With a
dividend distributions; on the other hand, cash dividend, a stockholder has no choice but to
these companies would be positively affected accept the dividend and pay the taxes.
by increasing dividend payouts or making
additional payouts of the same dividends.
Furthermore, companies without a dividend
history are generally viewed favorably when At times, there may be a block of shares from
they declare new dividends. (For more, one or more large shareholders that could come
see Dividends Still Look Good After All These into the market, but the timing may be unknown.
Years. This problem may actually keep potential
stockholders away since they may be worried
Stock repurchase about a flood of shares coming onto the market
and lessening the stock's value. A stock
Stock repurchase may be viewed as an repurchase can be quite useful in this situation.
alternative to paying dividends in that it is another
method of returning cash to investors. A stock Disadvantage of a Stock Repurchase
repurchase occurs when a company asks From an investor's perspective, a cash dividend
stockholders to tender their shares for is dependable; a stock repurchase, however, is
repurchase by the company. There are several not. For some investors, the dependability of the
reasons why a stock repurchase can increase dividend may be more important. As such,
value for stockholders. First, a repurchase can be investors may invest more heavily in a stock with
used to restructure the company's capital a dependable dividend than in a stock with less
structure without increasing the company's debt dependable repurchases.
load. Additionally, rather than a company
changing its dividend policy, it can offer value to
its stockholders through stock repurchases,
keeping in mind that capital gains taxes are lower In addition, a company may find itself in a
than taxes on dividends. position where it ends up paying too much for the
stock it repurchases. For example, say a
Advantages of a Stock Repurchase company repurchases its shares for $30 per
Many companies initiate a share repurchase at a share on June 1. On June 10, a major hurricane
price level that management deems a good entry damages the company's primary operations. The
point. This point tends to be when the stock is company's stock therefore drops down to $20.
estimated to be undervalued. If a company Thus, the $10-per-share difference is a lost
knows its business and relative stock price well, opportunity to the company.
would it purchase its stock price at a high level?
The answer is no, leading investors to believe
that management perceives its stock price to be
at a low level. Overall, stockholders who offer their shares for
repurchase may be at a disadvantage if they are
Unlike a cash dividend, a stock repurchase gives not fully aware of all the details. As such, an
investor may file a lawsuit with the company, Like cash dividends, stock dividends and stock
which is seen as a risk. splits also have effects on a company's stock
price. Stock Dividends
Price Effect of a Stock Repurchase Stock dividends are similar to cash dividends;
A stock repurchase typically has the effect of however, instead of cash, a company pays out
increasing the price of a stock. stock. As a result, a company's shares
outstanding will increase, and the company's
Example: Newco has 20,000 shares outstanding stock price will decrease. For example, suppose
and a net income of $100,000. The current stock Newco decides to issue a 10% stock dividend.
price is $40. What effect does a 5% stock Each current stockholder will thus have 10%
repurchase have on the price per share of more shares after the dividend is issued.
Newco's stock?
Residual Dividend Policy Mutual fund and ETF shareholders are often
A residual dividend policy is also highly volatile, entitled to receive accrued dividends as
but for some investors, it is the only acceptable well. Mutual funds pay out interest and dividend
dividend policy that a company should have. In a income received from their portfolio holdings as
residual dividend policy the company pays out dividends to fund shareholders. In addition,
what's left after it pays for capital expenditures realized capital gains from the portfolio's trading
and working capital needs. This approach is activities are generally paid out (capital gains
volatile, but it makes the most sense in terms of distribution) as a year-end dividend.
business operations. Investors don't want to
The dividend discount model, or Gordon growth
invest in a company that justifies its increased
model, relies on anticipated future dividend
debt with the need to pay dividends.
streams to value shares.
Dividend Yield
basis plus any additional non-recurring dividends
that may be received during that period.
Depending on the company's preferences and
A forward dividend yield is an estimation of a strategy, the dividend rate can be fixed or
year's dividend expressed as a percentage of adjustable.
current stock price. The year's projected dividend
is measured by taking a stock's most recent
actual dividend payment and annualizing it.
BREAKING DOWN 'Dividend
Forward dividend yield is calculated by dividing a
year's worth of future dividend payments by a Rate'
stock's current share price. The dividend rate of an investment, fund or
portfolio is calculated by multiplying the most
BREAKING DOWN 'Forward recent periodic dividend payments by the number
of periods in one year. For example, if a fund of
Dividend Yield'
investments pays a dividend of 50 cents on a
For example, if a company pays a Q1 dividend of
quarterly basis and pays an extra dividend of 12
25 cents and you assume the company's
cents per share because of a non-recurring event
dividend will be consistent, then the firm will be
from which the company benefited, the dividend
expected to pay $1.00 in dividends over the
rate is $2.12 ($0.50 x 4 + $0.12) per year.
course of the year. If the stock price is $10, the
forward dividend yield is 10%. Dividends are generally paid out by companies
that generate stronger cash flows. Companies
The opposite of a forward dividend yield is that are growing rapidly typically reinvest any
a trailing dividend yield, which shows a cash generated back into the business, and they
company's actual dividend payments relative to don't pay out any dividends to shareholders.
its share price over the previous 12 months. Cash-intensive businesses like consumer staples
When future dividend payments are not and utilities don't usually need to spend a lot
predictable, trailing dividend yield can be a better investing in growing their companies, so they can
measure of value. When future dividend distribute a percentage of income to shareholders
payments are predictable or have been as dividends.
announced, forward dividend yield is a more
accurate tool. Dividend Payout Ratio
Companies that pay dividends often prefer to
maintain or slowly grow their dividend rates as a
demonstration of stability and as a means of
Accelerated
rewarding shareholders. Companies that cut their
dividends may be entering a financially weaker
state that, in many cases, is accompanied by a
Dividend
drop in the stock price.
Constructive
fundamelta viw-refers to the analysis of the
economic well-being of a financial entity as
opposed to only its price movements.
2)Followers of the efficient market hypothesis, Cowen & Co. (TripRanks gives her a 5-
however, are usually in disagreement with
star rating).
both fundamental and technical analysts. The
efficient market hypothesis contends that it is Stock price right now: $50
essentially impossible to produce market-
beating returns in the long run, through either Becker says the stock will go to $58
fundamental or technical analysis. The
because both leisure and business
rationale for this argument is that, since the
travel continues to pick up, especially
market efficiently prices all stocks on an
ongoing basis, any opportunities for excess
as post-election optimism has soared.
returns derived from fundamental (or technical) RISING INTEREST RATES
analysis would be almost immediately
(reducidas)whittled away by the market's Unlocking the vault for shareholders
many participants, making it impossible for Most banks profit margins should rise with
interest rates, but some stocks will get a
anyone to meaningfully outperform the market
bigger jolt than others.
over the long term.
says. That may not boost revenue next year
at Pentair, which focuses on filtering and
he companies with the most skin in the pumping water for residential and
industrial customers. But Ahlsten expects
game are banks, whose profit margins
Pentair to grow earnings 15% in 2017,
generally improve as rates riseand whose thanks to aggressive cost cutting
stocks have recently soared in anticipati
Funds from operations, or FFO, is the The internalization of IRT has created
preferred earnings metric for REITs a tradeable catalyst as the company
instead of earnings per share (EPS), expands in the lucrative Class B
which is used to evaluate non-real apartment space for years to come.
estate stocks. Out of all the When the stigma of misalignment of
companies in the apartment REIT interests wears off, and investors
industry, there isn't a single one that realize the discount valuations that
trades at less than a 15x price/FFO IRT offers in the growth phase of their
ratio that is internally managed. The life cycle, the stock should perform
average across the industry is 20x very favorably with a high margin of
price/FFO for 2016. Independence safety.
trades for around 10x price/FFO.
Brett Ewing is the chief market
IRT's dividend also sets itself apart strategist at First Franklin Financial
from the rest. At its current yield of Services with $110 million under
over 8%, it is more than double the management in Tallahassee, Fla.
next closest internally managed
apartment REIT. Even if it dropped its 5. Forterra (FRTA)
dividend down to a more respectable
payout ratio that was in-line with the By Eric Marshall
others in its space, it would still be
This recent IPO is a water
more than 25% higher than its closest
infrastructure products producer that
comps. Its ability to raise rents in the
should see nice secular demand over
Class B apartment space seems
the next few years. Forterra (FRTA),
positive for years to come because of
with roughly $1 billion in annual Forterra trades at an attractive
revenues, has built a platform to add valuation at just above 8X EV
additional infrastructure products. (enterprise value)/EBITDA compared
Currently, there are few players to most cement and aggregate
consolidating this industry. Forterra players that are over 10X. Assuming
could announce one or two accretive that Forterra is successful in
acquisitions in the first half of 2017, completing a couple of acquisitions in
causing current street earnings the year ahead, the stock could trade
estimates to be revised up. at $30 based on the valuations of
similar infrastructure stocks.
At Hodges Funds, we are especially
attracted to businesses that have high Eric Marshall is a portfolio manager at
barriers to entry. We Hodges Funds with $2.5 billion in
believe Forterra meets this criterion Dallas, Texas.
due to the regional nature of shipping
large-diameter concrete pipe within a 6. Dycom Industries (DY)
100- to 150-mile radius from where it
is manufactured. As a result, Forterra By Stephen DeNichilo, CFA
has limited competition within local
Dycom Industries (DY) is one of the
markets as well as rational pricing
nations largest specialty contractors
power for its products.
whose business is driven by the
Demand for water and drainage capital expenditure plans of the cable
products will be supported by the and telecommunications industries. In
replacement of aging public works a market trading near all-time highs,
infrastructure across the entire investors are best served by stocks
country. Management sees organic like Dycom that exhibit superior
demand growing at 6%-7% for organic growth attributes at
drainage in 2017, plus additional reasonable valuations with stock
growth from the Fast Act Money prices below past peaks.
requiring matching state funds of
Dycom is the direct beneficiary of
$0.20 for each federal $1.00.
what we see as a very long-term
One negative is that Forterra has $1.1 trend. The U.S. is in the early innings
billion of debt, which represents 4X its of a massive fiber-optic build-out in
enterprise value to EBITDA (earnings response to ever-increasing demand
before interest, taxes, depreciation for lightning-fast internet speeds and
and amortization). We believe it will the exponential growth of data
reduce debt through cash flow over consumption. Ask yourself a question:
the next couple of years, which should Would you change internet providers
support a higher P/E (price to if a competitor offered consistently
earnings) multiple for the stock. faster service at a lower price?
Cable and telecom companies believe Inc. with $364.3 billion under
the answer is yes and have management in New York City.
embarked on a veritable arms race of
fiber-optic deployments. For Dycom,
that has translated to a consistent
organic growth of approximately 25%
and a backlog of work that is up 30%
year-over-year. These dramatic fiber
expenditures have allowed Dycom to What not t buy
achieve earnings per share growth
from $1.16/share in the fiscal year
2014 to near $5.00/share in 2016 a
trajectory we expect will continue.
Trading at less than 15x its fiscal year
2017 EPS, Dycom represents a rare
combination of growth and value in
this market.
3- Mercado de valores
2- Simplicidad.
Fuente: www.nasdaq.com