Reading 40. Introduction to industry and company analysis
40a. Explain uses of industry analysis and the relationship of industry analysis to company analysis.
industry rotation-overweigh or underweight industries based on current phase of business cycle.
40b. Compare methods by which companies can be grouped, current industry classification systems, and classify a company, given a description of its activities and the classification system.
sector
principal business activity- the largest source of sales or earnings
sensitivity to business cycles
-cyclical and non-cyclical firms
statistical metods
-cluster analysis
缺点：
Industry classification systems
Commercial Classifications
1)basic materials and processing firms produce:
2)consumer discretionary firms are cyclical and sell goods and services in industries
3)customer staples
4)energy firms
5)financial services
6)health care
7)industrial and producer durables firms
8)real estate firms
9)technology firms
- telecommunications firms
Government classifications
1)international standard industrial classification of all economic activities
2)statistical classification of economic activities in the European community
3)Australian and new Zealand standard industrial classification
4)North american industry classification system
40c. Explain the factors that affect the sensitivity of a company to the business cycle and uses and limitations of industry and company descriptors such as growth, defensive and cyclical.
cyclical firm
non-cyclical firm
defensive industries
growth industries
growth cyclical
40d. Explain how a company's industry classification can be used to identify a potential "peer group" for equity valuation.
peer group
40e. Describe the elements that need to be covered in a thorough industry analysis.
strategic groups
life-cycle stage
experience curve
40f. Describe the principles of strategic analysis of an industry.
economic profits
strategic analysis-Porter's
1)rivalry among existing competitors
2)threat of entry
3)threat of substitutes
4)power of buyers
5)power of suppliers
40g.Explain the effects of barriers to entry, industry concentration, industry capacity and market share stability on pricing power and price competition.
Barriers to entry
Industry concentration
Industry capacity
market share stability
switching costs
40h.Describe industry life cycle models, classify an industry as to life cycle stage, and describe limitations of life-cycle concept in forecasting industry performance.
Industry life cycle
-embryonic stage/growth stage/ shakeout stage/ mature stage/decline stage
40i.Compare characteristics of representative industries from the various economic sectors.
major firms
barriers to entry and success
industry concentration
influence of industry capacity on pricing
industry stability
life cycle
competition
demographic influences
government influence
social influence
technological influence
business cycle sensitivity
40j. Describe macroeconomic, technological, demographic, governmental and social influences on industry growth, profitability and risk.
40k. Describe the elements that should be covered in a thorough company analysis.
company analysis
competitive strategy
cost leadership(low-cost)strategy
product or service differentiation strategy
predatory pricing
differentiation strategy
spreadsheet modeling
41e. Explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-euqity models.
dividend discount model (DDM)
one-year holding period DDM
multiple-year holding period DDM
free cash flow to equity(FCFE)
Estimating the required return for equity
41f.Calculate the intrinsic value of non-callable,non-convertible, preferred stock.
41g. Calculate and interpret the intrinsic value of an equity security based on the Gordon(constant) growth dividend discount model or two-stage dividend discount model, as appropriate.
Gordon(constant) growth dividend (constant growth model)
Estimating the growth rate in dividends
sustainable growth rate
Multistage dividend growth models
41h. Identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate.
41i. Explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals and the use of multiples based on comparables.
price multiple
price multiples based on comparables
price multiples based on fundamentals
41j.Calculate and interpret the multiples:
price to earnings(P/E) ratio
price to an estimate of operating cash flow
price to sales(P/S) ratio
price to book value (P/B) ratio
price-cash flow(P/CF) ratio
Multiples based on fundamentals
justified P/E
dividend displacement of earnings
Multiples based on comparables
law of one price
41k. Describe enterprise value multiples and their use in estimating equity value.
Enterprise value(EV)-measure total company value.
41i. Describe asset-based valuation models and their use in estimating equity value.
asset-based models
41m.Explain advantages and disadvantages of each category of valuation model.
discounted cash flow models
优点
缺点
comparable valuation using price multiples
优点
缺点
price multiple valuations based on fundamentals
优点
缺点
asset-based models
优点
缺点
