Download Greenwald Earnings Power Value EPV lecture slides PDF

TitleGreenwald Earnings Power Value EPV lecture slides
TagsTypes Business/Law Finance
File Size356.8 KB
Total Pages43
Table of Contents
                            Basic Structure of Investment Process and Valuation
Value Investing Principles
Value Investing Process
Systematic Biases
Value Investing Process
Valuation Approaches – Ratio Analysis
Valuation ApproachesNet Present Value of Cash Flow
Shortcomings of NPV Approach in Practice
Valuation Assumptions
Value InvestingBasic Approach to Valuation
Basic Elements of Value
Industry Entry - Exit
Asset Value
Earning Power Value
“Earning Power” Calculation
Earnings Power Value
Earning Power and Entry - Exit
Total Value Including Growth
Value of Growth - Basic Forces At Work
Value of GrowthQuantitative Effects
Earning Power and Entry - Exit
Valuing Growth Basics
Value Investing Process
Consequences of Free EntryCommodity Markets (Steel)
Product DifferentiationBranding(Profitability & Stability)
Consequences of Free EntryDifferentiated Markets (Luxury Cars)
Barriers to Entry
Barriers to Entry
Barriers to Entry
Barriers to Entry
Varieties of Competitive Advantage
Competitive Advantage Strategy Implications
Assessing Competitive Advantages/B-to-E Strategy Formulation
Procedure in Practice
Prospective Returns US & India Markets
Hindustan Unilever: Market Dominance
Hindustan Unilever:  Financial returns
Infosys: Performance
Simple Examples Franchise Verification
Simple ExamplesFranchise VerificationSources of Competitive Advantage
Calculated Growth Stock Returns
Appendix
                        
Document Text Contents
Page 1

1

Basic Structure of Investment Process
and Valuation

Professor Bruce Greenwald

Page 2

2

Value Investing Principles

• Identify enterprises whose value as a
business is reliably calculable by you (circle
of competence)

• Among those enterprises, invest in those
whose market price (equity plus debt) is
below your calculated value by an
appropriate margin of safety (1/3 to 1/2)

Page 21

21

Value of Growth
Quantitative Effects

Investment : • $100 million

Cost of Funds: • 10% (R) = $10M

Return on Investment (%) 5% 10% 20%

Return on Investment ($) $5M $10M $20M

Cost of Investment $10M $10M $10M

Net Income Created ($5M) 0 $10M

Net Value Created ($50M) 0 $100M

Qualitative Impact:

Situation:

Value
Destroyed

Competitive
Disadvantage

No Value

Level
Playing

Field

Value
Created

Competitive
Advantage

Page 22

22

Earning Power and Entry - Exit

Asset Value EP Value

Case B: Free Entry
Industry
Balance

Case A:

Asset Value EP Value

Value Lost to Poor
Management
and/or Industry
Decline

Asset Value EP Value

Case C: Consequence of
Comp. Advantage
and/or Superior
Management

“Sustainability” depends on Continuing Barriers-
to-Entry

Page 42

42

Calculated Growth Stock Returns

CASH RE GROWTH TOTAL

Wal-Mart = 1.5% + 4.5% + 3.5% = 9.5% + Option

American
Express

= 4% + 4% + 7.5% = 15.5% + Option

Gannett = 10% - 1% - 2.0% = 7.0% + Option

Dell = 0% + 5% + ? = 5.0% + Growth
+Option

(P/E – 17, Growth – 11 ½%)

(P/E – 17 ½, Growth – 13%)

(P/E – 11, Growth –3%)

(P/E – 20, Growth –15%)

(x1 Capital
Allocation)

(2% x 2)

(?)

Page 43

43

Appendix

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