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Valuation Ratios

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Corporate Finance I: Measuring and Promoting Value Creation

伊利诺伊大学香槟分校

4.8（455 個評分） | 11K 名學生已註冊

課程 5（共 7 門，财务管理專項課程）

In this course you will learn how to use key finance principles to understand and measure business success and to identify and promote true value creation. You will learn how to use accounting information to form key financial ratios to measure a company’s financial health and to manage a company's short-term and long-term liquidity needs. You will also learn how to use valuation techniques to make sound business investment and acquisition decisions. Finally, you will learn how to incorporate risk and uncertainty into investment decisions and how to evaluate the performance of existing investments. Upon successful completion of this course you will be able to: • Understand how companies make investment decisions that create value for shareholders • Use accounting statements to measure the financial health of a company • Forecast and manage a company’s short- and long-term liquidity needs • Measure the contribution of a new project or acquisition to shareholder value • Incorporate risk into investment decisions using the appropriate discount rates • Evaluate the performance of a company or divisions of a company This course was previously entitled Financial Evaluation and Strategy: Corporate Finance. The course received an average rating of 4.7 out of 5 based on 177 reviews over the period of September 2015 through August 2016. A detailed breakdown of ratings and reviews received for the prior version of the course, which is identical in content to the current course, is provided in the course orientation page. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

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您將學習的技能

Corporate Finance, Project, Finance, Mergers And Acquisitions (M&A)

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4.8（455 個評分）

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JF

Feb 04, 2019

Great course! I felt that I learned quite a bit. My undergrad is Finance and I feel that this course covered more topics and in more depth than my previous university studies.

KK

Jun 13, 2019

Very good. Much better than other corporate finance courses you can find on coursera.\n\nMaterials cover a broad range of topics and the explanation is clear and consise.

從本節課中

Module 1: The Objective of the Corporation and Analysis of Financial Ratios

In Module 1, we will discuss the objectives of the corporation. We will introduce the concept of shareholder value and discuss the pros and cons of maximizing stock prices. We will then learn how to calculate financial ratios that measure concepts such as liquidity, leverage, and profitability. We will work with accounting statements and financial data from real world companies and learn how to use this data to measure the financial health of companies and make comparisons with competitors.

Valuation Ratios10:34

教學方

Heitor Almeida
Professor of Finance, Stanley C. and Joan J. Golder Chair in Corporate Finance

腳本

[ Music ]

>> Heitor Almeida: So we've done a lot of work, right?

We computed liquidity ratios.

We computed leverage ratios.

We computed profitability ratios.

We looked at cash flow statements.

And if you think about what we've done, you know,

we really learned a lot about what's going on with Cablevision

and DIRECTV -- this specific example we looked at, right?

And, of course, you can use the, a similar calculation,

similar techniques to think about any company

that you're interested in, right?

Here's the summary of what we discovered

for Cablevision and DIRECTV, right?

Cablevision has higher leverage

and lower profitability than DIRECTV.

DIRECTV seems to be a more profitability company, right?

DIRECTV also has liquidity ratios

that are a little bit higher, okay.

And if you look at the cash flow statement, what you see is

that both companies are investing in operations

and are returning cash to invest, right.

They have positive, they have negative, sorry,

negative cash flow from investment

and negative cash flow from finance, okay.

So how have the companies performed in recent years?

Let's look at what happened to stock prices, okay.

As we discussed earlier in this module,

the stock price really is the key summary of the value of,

of shareholder value, right.

And it should be somewhat related, right.

If these ratios make sense,

then the stock price would be somewhat related

to what we discovered here.

And if you look at the stock price performance

or DIRECTVision and Cablevision in the recent time period --

we are looking here at the last five years, okay --

what you see is that DIRECTV, which is the red line,

so this is DIRECTV here.

Cablevision is the blue line, okay.

DIRECTV has performed significantly better

than Cablevision in the last five years, okay.

So this stock price chart is consistent

with the analysis we've done, right.

We learned that DIRECTV is more profitable,

it has lower leverage.

As we learned, poor performance can result in higher leverage,

right, so this, you know, just from this,

doing this quick analysis, it does make sense

that DIRECTV has performed better than Cablevision

in the last five years, all right?

Since we're talking about stock prices, this is a good time

for us to think about valuation ratios, okay.

This is the last set of financial ratios

that we're going to discuss in this module, right.

And these ratios are ratios

that summarize the company's current market valuation.

And there are going to be two versions that we're going

to use, but both of them are going

to use market values in the numerators.

So the market value's going to be in the numerator,

and then in the denominator of these ratios,

we're going to have either book value or profits,

current profits, okay.

So let's go back here and think about what these ratios mean.

So we have market divided by current profits, for example.

Market value divided by current profits, okay.

And we've learned already, right, that the market value

of a company is a measure of everything, right --

current, but also future cash flows.

The market value should reflect all the cash flows, right,

so really what you're doing is dividing the future,

okay, by today, right.

This is how we should interpret the valuation ratios.

It's the measure of future relative to what you have today.

It's also true when you look at book values, right.

As we already learned, the book value

of assets essentially reflects what happened

to the company up to this point.

It does not capture the future.

So if you compute a valuation ratio,

this really is what you're doing, okay.

So remember this idea.

It's a very important idea I think in finance.

So the market to book ratio, let's talk about that one first.

It's the ratio that uses book values in the denominator, okay.

This ratio can be based either on assets or equity.

What do you, what do I mean?

So there are two versions.

We can use the market values of assets and the book value

of assets or you can use the market value of equity

and the book value of equity, okay.

And we already learned in this module

that book equity can be a problematic measure.

For example, for Cablevision and DIRECTV, you would not be able

to compute the market to book ratio

because they have negative equity, okay.

Because of that reason, I think it's better,

I prefer when I'm computing these ratios,

I prefer to use assets to compute market to book ratios.

So instead of using equity, I prefer to use assets, okay.

I'm going to show you an example in a second.

In terms of value over profits, again,

we can do this either based off assets

or based off equity, okay.

So as we learned already, right, OPAT is a measure of profits

for the company as a whole, right.

Operating profit after taxes measures profits

for the company as a whole.

Net income measures profits for shareholders, okay.

So ratio number one divides the market value of assets,

the entire company, by profits, current profits for the company

as a whole, whereas ratio number two,

which is the well-known price

to earnings ratio, looks at equity only.

So it's the market value of equity divided by net income.

These ratios capture very similar information, right,

because you're dividing market values

by current profits, right.

But you might guess that at this point, I think you probably,

can probably guess the ratio that I prefer, okay.

I, you know, I really prefer to look at ratio number one, right.

Why? Because it's based off asset values and profits

to the entire company, so we are looking

at the entire company instead of looking just at equity, okay.

And because we are, we avoid using net income, right.

Remember, the key difference between OPAT and net income is

that OPAT is at the top of the income statement

and net income is at the bottom, so net income is a number

that is easier to manipulate, okay.

So I, my recommendation is that we focus mostly on assets

over OPAT instead of the price to earnings ratio

when we're analyzing companies

for corporate finance purposes, okay.

Cablevision.

So it should be very simple to compute these ratios.

All of these numbers were computed in previous slides,

okay, so it should be really straightforward for you

to do these calculations.

For example, the market to book ratio should be just the market

value of assets divided by the book value of assets, right.

So you can see that this ratio is going

to be a little bit below three for Cablevision

and you can do the calculation for DIRECTV as well, and which,

you know, the data is here.

To make it easy for you, you can compute the other ratio

for our Cablevision, and that is the answer you would get, okay.

So Cablevision has market to book ratio of 2.7.

The DIRECTV has a market to book ratio of 3.1.

Cablevision has a higher value to OPAT ratio, okay,

which seems to be an interesting observation, right.

So it appears that Cablevision is valued more, right.

If you think about valuation ratios that way, right,

it might seem that Cablevision is valued more

by the market than DIRECTV, okay.

So let's think about that for a while.

Is this finding, right, does the,

is this consistent what we've done so far, right?

We learned that DIRECTV has performed better, right.

It is more profitable and all that, so, you know,

what about this ratio that we found now?

How can this be consistent with what we've done?

That's the question for you to think about for a while.

And the answer is yes, okay.

It has to be, right.

This is the real data.

It has to be consistent, okay.

Why, remember, valuation ratio, what it's measuring is future

over present or even future over past, right.

The book value of assets reflect what happened

in the past as well, right.

DIRECTV is more profitable, currently is more profitable

and has performed better in recent years, okay,

so it's not surprising that a greater,

really what you're finding is that a greater portion

of Cablevision's value is lying in future,

depends on future profits, okay.

The value of Cablevision depends more on what's going to happen

in the future whereas DIRECTV is more profitable today, okay.

That's how you would conciliate this higher value OPAT ratio

with the analysis we've done so far, okay.

And just a final observation here.

Sometimes future values can come not from organic growth,

but they can come from mergers, which is going to be one

of the topics that we will discuss

in a future module, right.

There is a rumor going on that Cablevision might be acquired

by another company, right.

And, of course, an acquisition can definitely change the future

prospects of a company.

Perhaps that is the reason why investors are boosting the

valuation of Cablevision in the expectation

that this merger is going

to improve the financial situation of the company.

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