Coulon Rational Investing with Ratios

Implementing Ratios with Enterprise Value and Behavioral Finance
1. Auflage 2019
ISBN: 978-3-030-34265-4
Verlag: Springer International Publishing
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 178 Seiten

Reihe: Psychology and Our Planet

Explaining the underlying logic behind financial ratios, this book adds to the discussion on the importance and implementation of ratios and illustrates the essential role that they play in company evaluations and investment screening. The author explores how ratios establish a proportional relationship between accounting and market data, and when well-integrated into a global company vision, can become powerful indicators capable of outlining relevant information and identifying warning signs. Going beyond merely listing possible ratios and looking further into their implementation, each ratio family is demonstrated with numerous graphs and practical case studies involving companies such as Amazon, Walmart and Alibaba. With a focus on behavioral finance and enterprise value, this innovative Palgrave Pivot will be of interest to investors, bankers and entrepreneurs, as well as finance scholars and students.


Yannick Coulon has studied at business schools in France, Germany and Switzerland, and holds an MBA and certificate in behavioral finance. Currently an investor and manager in the golf industry, he has many years of experience working for UBS Global Asset Management in Switzerland, and as the European Product Manager for the Zip drive developed by Iomega, USA. Yannick also teaches finance (including behavioral finance) at a business school in Brittany, France, and has written three books in this area.

Autoren/Hrsg.

Coulon, Yannick

Inhaltsverzeichnis

1;Preface;5
1.1;Why Do You Need This Book?;5
1.2;Ratio Quality and Limitations;5
1.3;Accuracy or Trend;6
1.4;Comparisons Have Limitations;6
1.5;Ratios Are a Beginning, Not an End Unto Themselves;6
1.6;Ratios Are Numerous;6
1.7;Ratios for Family Businesses and Corporations;6
1.8;Enterprise Value (EV);6
1.9;A Touch of Behavioral Finance;7
1.10;The Narrative Thread;7
2;Acknowledgments;9
3;Contents;10
4;List of Figures;14
5;List of Tables;16
6;Chapter 1: Presentation of Key Financial Metrics and Enterprise Value;19
6.1;1.1 The Balance Sheet, Income and Cash Flow Statements;19
6.1.1;1.1.1 The Balance Sheet;20
6.1.1.1;Liability Versus Debt, Definition and Scope;20
6.1.2;1.1.2 The Income Statement;22
6.1.3;1.1.3 The Cash Flow Statement;23
6.2;1.2 The Cash Flows;23
6.2.1;1.2.1 FCFF and FCFE;23
6.2.2;1.2.2 EBITDA;25
6.2.3;1.2.3 Recurring Cash Flows;26
6.2.3.1;Company Comparison: Bogey or Eagle?;26
6.3;1.3 Enterprise Value (EV);27
6.3.1;1.3.1 Capital Employed and Operating Assets;27
6.3.2;1.3.2 Examples of Capital Employed Calculations;28
6.3.2.1;The Treatment of Cash and Cash Equivalents Can Be Complex!;29
6.3.2.2;Conclusions: SGVSL’s Capital Employed;30
6.3.2.3;Conclusions: SGVSL and SGVSL Excess’s Capital Employed;31
6.3.3;1.3.3 Non-Core Assets;32
6.3.4;1.3.4 Definition of Enterprise Value;33
6.3.4.1;EV Is Valued at Market Price;34
6.3.4.2;EV and the Market Value of Equity;35
6.3.5;1.3.5 The EV Concept Applied to Comparable Companies;35
6.3.6;1.3.6 The EV Concept Applied to Real Estate Investments;37
6.3.6.1;Successive Sales of Real Estate Property Alpha;37
6.3.6.2;Creation of a New Lot, Beta, Within the Large Tract of Land in 2020;39
6.3.7;1.3.7 EV Equations;40
6.3.7.1;Market Value of Debt Versus Book Value of Debt;41
6.3.7.2;Market Capitalization Definition;42
6.3.8;1.3.8 EV Calculation (MTM Accounting);42
6.3.8.1;Company SEGA’s EV Calculation;42
6.3.9;1.3.9 EV Calculation (Using DCF Method);43
6.3.9.1;On the Importance of Non-Core Assets;46
6.4;1.4 Key Takeaways on Key Financial Metrics and Enterprise Value;46
6.5;References and Further Reading;47
7;Chapter 2: Efficiency Ratios;48
7.1;2.1 Efficiency Ratios;48
7.2;2.2 Inventory Days;50
7.3;2.3 Accounts Receivable Days;51
7.4;2.4 Accounts Payable Days;52
7.5;2.5 Working Capital Definitions;53
7.6;2.6 Non-Cash Working Capital Financing;57
7.7;2.7 Working Capital Management;60
7.8;2.8 Key Takeaways on Efficiency Ratios and Their Limitations;61
7.9;References and Further Reading;62
8;Chapter 3: Key Liquidity and Solvency Ratios;63
8.1;3.1 Liquidity Versus Solvency;63
8.2;3.2 Key Liquidity Ratios;64
8.2.1;3.2.1 The Three Main Liquidity Ratios;64
8.2.2;3.2.2 Liquidity Ratios of an Illiquid Company;65
8.2.2.1;Company Omega;65
8.2.3;3.2.3 Liquidity Ratios of a Financially Sound Company;66
8.2.3.1;Company Sigma;66
8.3;3.3 Key Solvency Metrics;67
8.3.1;3.3.1 Net Worth and Solvency Ratios;68
8.4;3.4 Case Studies of Three Companies Showing Contrasting Financial Situations;69
8.4.1;3.4.1 The Best-Case Scenario;69
8.4.1.1;Liquidity Ratios;69
8.4.1.2;Solvency Ratios;70
8.4.2;3.4.2 The Grey Scenario;71
8.4.2.1;Liquidity Ratios;71
8.4.2.2;Solvency Ratios;72
8.4.3;3.4.3 The Worst-Case Scenario;74
8.4.3.1;Liquidity Ratios;74
8.4.3.2;Solvency Ratios;75
8.4.3.3;Solvency at Its Worst!;76
8.5;3.5 Key Takeaways on Liquidity Plus Solvency Ratios and Their Limitations;77
8.6;References and Further Reading;78
9;Chapter 4: Debt Ratios;79
9.1;4.1 Introduction on Indebtedness;80
9.2;4.2 Financial Leverage;80
9.3;4.3 Debt to Equity Ratios;81
9.4;4.4 Debt Coverage Ratios;83
9.5;4.5 Debt Ratios Using Enterprise Value;86
9.6;4.6 Limitations of Debt to Equity Ratio;87
9.6.1;4.6.1 Companies with Negative Equity;87
9.6.1.1;Example: Company Libertee;88
9.6.2;4.6.2 Companies with Large Real Estate Holdings;90
9.6.2.1;1st Method: Separating Real Property from Operating Assets when Analyzing Debt Leverage;92
9.6.2.2;Negative Net Debt and Its Meaning;92
9.6.2.3;2nd Method: Using Non-Core Assets and Enterprise Value;93
9.7;4.7 Debt and Industries;95
9.8;4.8 Financial Instability;96
9.9;4.9 Key Takeaways on Debt Ratios and Their Limitations;99
9.10;References and Further Reading;100
9.10.1;Debt and Industries: Balance Sheets Used;100
10;Chapter 5: Profitability and Performance Ratios;101
10.1;5.1 Book-Value Based Versus Market-Value Based Profitability Ratios;102
10.2;5.2 Book-Value Based Profitability Ratios;102
10.3;5.3 Market-Value Based Profitability Ratios;105
10.4;5.4 Case Study (Operating, Financial Performance and Leverage);110
10.5;5.5 Case Study (Forward P/E and EV Multiples);113
10.5.1;5.5.1 The Forward P/E Approach;114
10.5.2;5.5.2 The Forward EV Multiple Approach;115
10.5.3;5.5.3 Target Market Capitalizations Using the Forward Sector EV Multiple;116
10.5.3.1;Target Market Capitalization of Company Serenity;116
10.5.3.2;Target Market Capitalization of Company Bold;117
10.5.4;5.5.4 Conclusion Incorporating the Debt Situation;118
10.5.4.1;Conclusion, According to the Limited Information Available;118
10.6;5.6 Value and Growth Investing;119
10.7;5.7 Key Takeaways on Profitability Ratios and Their Limitations;119
10.8;References and Further Reading;120
11;Chapter 6: Case Studies;121
11.1;6.1 Brief Introduction to the Case Studies;121
11.2;6.2 A Private Company in Trouble: PAB Limited;122
11.2.1;6.2.1 PAB’s Efficiency Ratios;123
11.2.1.1;Findings;124
11.2.1.2;Conclusion on Working Capital;124
11.2.1.3;Inventory Days;124
11.2.1.4;Accounts Receivable Days;125
11.2.1.5;Accounts Payable Days;126
11.2.1.6;Conclusion on Working Capital Days;126
11.2.2;6.2.2 PAB’s Liquidity Ratios;126
11.2.2.1;Conclusion on Liquidity;127
11.2.3;6.2.3 PAB’s Debt and Solvency Ratios;128
11.2.3.1;Debt to Equity Ratios (Static Approach);128
11.2.3.2;Debt Coverage Ratios (Dynamic Approach);128
11.2.3.3;Cost of PAB’s Debt;129
11.2.3.4;Solvency Metrics;129
11.2.3.5;Conclusion on Debt and Solvency;131
11.2.4;6.2.4 PAB’s Profitability Ratios;131
11.2.4.1;EBITDA Margin;131
11.2.4.1.1;Detailed calculations;131
11.2.4.2;Operating Margin;131
11.2.4.2.1;Detailed calculations;131
11.2.4.3;Profit Margin;131
11.2.4.4;Return on Capital Employed (ROCE, Net After Tax);131
11.2.4.5;EV Multiple;132
11.2.4.5.1;Detailed calculations;132
11.2.4.6;Return on Equity;132
11.2.4.7;Conclusion on PAB’s Profitability;132
11.2.5;6.2.5 Summary and Final Thoughts on Company PAB;133
11.3;6.3 Comparison Between Alibaba, Amazon and Walmart;133
11.3.1;6.3.1 Alibaba Group;134
11.3.2;6.3.2 Amazon;137
11.3.3;6.3.3 Walmart;138
11.3.4;6.3.4 Liquidity and Efficiency;140
11.3.4.1;Formula Used in the Cash Ratio Calculation;140
11.3.4.2;Formulas and Definitions Used in the Working Capital Calculations;141
11.3.4.3;Findings on Working Capital;141
11.3.4.4;Another Meaningful Comparison;142
11.3.4.5;Workforce Productivity;143
11.3.5;6.3.5 The Debt and Solvency Situation;143
11.3.5.1;Findings on the Debt and Solvency Situation;144
11.3.6;6.3.6 The Compared Profitability;144
11.3.6.1;Forward Earnings Methodology;146
11.3.6.2;Formulas Used in the Forward Profitability Calculations;147
11.3.6.3;Profitability Findings;147
11.3.7;6.3.7 Summary and Final Thoughts;148
11.3.7.1;Quantitative and Qualitative Comments;148
11.3.7.2;Final Thoughts;149
11.4;References and Further Reading;149
11.4.1;Webography;150
11.4.2;Balance Sheets;150
12;Chapter 7: Investment Thesis;151
12.1;7.1 Definition of an Investment Thesis;151
12.2;7.2 Benefits of an Investment Thesis;153
12.3;7.3 Possible Investment Theses for Alibaba, Amazon and Walmart;156
12.4;7.4 Market Hedging;158
12.5;7.5 Selection of Damaging Behavioral Biases;159
12.6;7.6 Key Takeaways on Investment Thesis;167
12.7;References and Further Reading;167
13;Correction to: Rational Investing with Ratios;169
14;Appendix: List of Key Ratios;171
14.1;A Selection of Key Financial Metrics (Chap. 1);171
14.2;A Selection of Efficiency Ratios (Chap. 2);172
14.3;A Selection of Liquidity and Solvency Ratios (Chap. 3);172
14.4;A Selection of Debt and Leverage Ratios (Chap. 4);173
14.5;A Selection of Profitability and Performance Ratios (Chap. 5);173
15;General Bibliography, Webography and Further Reading;174
15.1;Webography;175
15.2;Balance Sheets;175
16;Index;176