Proactive Structural Dynamic Global Portfolio
Valuation and Financial Statement Analysis
---Global Equities Valuation Operations Simulation
Analysis (OSA)＊Forecasts
Dr. Warren Huang
pioneer top down proactive global structural financial equities valuation
modeling Operations Simulation Analysis:
Proactive Structural Dynamic Country
Analysis: Quantify the unknown, uncertain future, forecast years, month ahead
of last 30 years causes, onset,
spread, recovery , early warning global
boom and bust, currency, financial crisis, energy ,IT asset prices
bubble bursts, the risks and Opportunities of emerging bull/bear market trend
Through simulation of Monetary economic, fiscal, WTO policy impact on the country sustainable GDP
growth, price stability inflation, interest rate, currency, financial systemic
stability, business cycle, unemployment, credit, political risks ,
Comment by Wall Street
Journal Market Beat Blog- November 20, 2008 at 2:57
pm
|
I warned
on this blog months ago that stock will getting cheaper next year, it is
premature to bargain bottom fishing Warren Buffet invested 5 billion for
Goldman Sach at 120 per share now plunged to
55. Berkshire fund can not be immune from market turmoil,as its holding share will follow |
Financial ratios play a key role in tracking,/forecasts and fighting unknown, uncertain futures performance
and risks and corporate scandals early warning
OSA pioneer Dr. Warren Huang has implemented
Proactive Structural top down equities valuation for Financial ratios global equities
valuation, investments . (1) proactive structural equities valuation
(2) Tracking, simulate macro, financial, economic impact on global
industrial analysis, stock＊s systematic
risk (beta ) (3)tracking, forecast credit quality ranking bonds (4)
predicting the systematic risks shock impact on insolvency (bankrupts) of the film .The we will discuss how the ratios
have been used in each of the four areas ,and the specific ratios found to be
most useful .
Most valuation
models attempt to derive a value based upon one of several present value of
cash flow models or an appropriate relative ratio for a stock . All the
valuation models are influenced by the expected growth rate of earning , cash
flows or dividends ,and the required rate of return on a the stock , Clearly
,financial ratio can help in making these
estimations. The estimation of growth rate for earnings ,cash flows or dividends employs the growth ratios
每the rate of return and the return on investments (equity or total assets ) .
When estimating the required rate of
return on the security ( the cost of equity ,k, the weighted average cost of
capital ,WACC ),you will find it depends on the risk premium ,which is the
function of business risk ,financial risk and liquidity risk .Business risk is
measured by the volatility of the earnings .Financial risk is determined by the
debt proportion ratios ( the interest coverage , or cash flows ratios ) or the
flow ratios .with insights regarding the liquidity risk ,which can be derived from the external
liquidity measured .
The typical
empirical valuation model has examined a cross section companies and used a
multiple regression model that relates the price 每earnings ratios for the
sample firms to some of the following corporate variables.( the averages
generally consider the past 5 or 10 years .)
The relevant ratios
are average interest coverage ,average dividend payout ,average return on
equity ,average retention rate ,average market price to book value ,average
market price to cash flow ,average market price to sales.
A three-step investment process
1. analysis of alternative economies and security
markets .the objective is to decide
how to allocate investment funds among countries and within countries to
bonds ,stocks ,and cash .
2. analysis of alternative industrials .based upon
the economic and security market analysis ,determine which industrials will
prosper and which industrials will suffer on a global basis and within
countries ,
3. analysis of
individual companies and stocks .based upon the analysis of economy and
industrials ,determine which companies will prosper and which stocks are
undervalued .
Approaches to
equity valuation :
1.discounted cash
flow techniques .
present value of
dividends
prevent value of
operating cash flow
prevent value of
free cash flow
2 .relative valuation techniques .
price/earnings
ratio (P/E)
Price /cash flow
ratio (P/CF)
Price /book value
ratio (P/BV)
Price /sales
ratios (P/S)
These static ratio use 3 month old financial data,
fail to track , forecast the future macro, financial, industrial economic
impact on future price trend, Take recent US subprime crisis for example, CFC
(country wide financial CFC stock price plunge from 45 to 6 as its PE ratio
plunged from 13 to 3.5, and earning per share stay
as high as 3.75, finaly get into billion dollar loss, most investment,
Citigroup, Merril, Morgan Stanley follow the same pattern as its earning swing
from billions to 1.2 billion loss in the third quarter , 2007, low PE and high
earning per share does not provide good value investment.
Derivatives
The fundamentals of option
valuation
The primary difference
between put-call parity and what follows are twofold. First ,the portfolio
implied by the put-call parity transaction did not require special calibration
.it simply consisted of one stock long ,one put long ,and one call short 每 a
mixture that required no adjustment prior to the expiration date .However,
hedging an underlying asset position＊s risk with a single option position
---whether it is a put or a call ---often involves using multiple contracts and
frequent changes in the requisite number to maintain the riskless portfolio
.second, the put
每call parity paradigm did not demand a forecast of the underlying asset＊s
future price level whereas the following analysis will.
C0=SN(d1)-X(e-(RFR)t)N(d2)
The Black-Scholes valuation model has
several attractive features .A joint examination of the expressions for
c,d1,d2,reveals that the option＊s value is a function of five variables :
1. current security price
2. exercise price
3. time to expiration
4. risk-free rate
5. security price volatility ----the
forecast of future stock price
Only OSA guided
proactive structural current/future securities price can avoid betting on the wrong
side of securities price investment
Management Accounting :
Cost-volume-profit
(CVP)analysis expresses the relationships among costs ,volume ,and profit or
loss .That is ,you use CVP analysis to estimate how changes in volume affect
costs and profits , to do this ,you
first need to understand cost behavior: how costs change 每if they change at all
每as volume changes .
,breakeven points.
Managers use
Contribution margin and CVP analysis to make decisions. Managers often extend
this approach by using variable costing〞which assigns only variable
manufacturing costs to products .Then they use variable costing to prepare
special income statements for internal management decision for internal management decisions .These variable costing income statements
group costs by behavior〞variable cost or fixed cost 每and highlight the
contribution margin .
External
reporting
Up to this point,
you have focused on the income statements that companies prepare for external
reporting under GAAP.GAAP requires that we assign both variable and fixed
manufacturing costs to products . Consequently ,published financial statements
are based on absorption costing ,this approach is called absorption costing
because products absorb fixed manufacturing cost as well as variable
manufacturing costs .
Supporters of
absorption costing argue that products can not be produced without fixed
manufacturing costs ,so these costs are important part of products cost .
The only
difference between absorption accounting and variable costing is that
absorption costing considers fixed manufacturing costs as inventoriable products costs, while variable costing
considers fixed manufacturing costs as period costs (expenses ).
The master budget
and responsibility accounting .
A budget is a
written plan that communicates management＊s goals to employees .it is far more
effective to have a formal ,written
plan than simply to communicate verbally with employees ,as there is less
chance of misunderstanding management＊s goals .
The master budget
includes three types of budgets :the operating budget ,the capital expenditures
budget and the financial budgets .
A responsibility
accounting system divides a business into subunits called responsibility
centers .A manager is assigned to each responsibility center and is evaluated
on how well the responsibility center performs.
A resposibilty,
center is a part or subunit of the organization whose manager is accountable
for specific activities .
In a cost center
managers are accountable for cost only .in a revenue center ,managers are
primarily accountable for revenues .
In a profit
center , managers are accountable for revenues and costs ,and therefore profits.
In an investment
center ,managers are accountable for investments ,revenues ,and costs .
Activity-based
costing focuses on activities as the fundamental cost objects.