Analysis & Valuation Using Financial Statements

1. Analysis & Valuation Using Financial Statements Wilbur Benitez January 15, 2014 Section 01

2. Module 1 Link between valuation and financial statement analysis • Goal of the text • Focus on practical methods for estimating value based on future payoffs • Tools: • Gather and understand current information • Apply the understanding of current information to arrive at forecasts of future financial information • Compute an estimate of value based on that available information

3. Valuation Approaches • Cash flow based valuation • Appeals because it reduces the risk of earnings manipulation (accruals) • Accounting based valuation • Focuses on information that is readily available

4. Theoretical and Practical Side • Theoretical • We begin with widely used models that show how future payoffs are related to current value • Theoretical models will assist us in determining what information is needed for our valuation calculations • Practical • This is where we begin to ask questions such as: • What information is available • How reliable is this information

5. Five Step Process • How to know a company’s environment • Understanding Business Environment • How to isolate a company’s enterprise operations • Reformulation of Financial Statements • How to determine the current status of a company • Financial Statement Analysis • How to formalize expectations of where the company is going • Forecasting Future Payoffs • How to calculate what the company is worth • Valuation

6. Sporting Goods Industry Overview • Major companies include: • Cabela’s • Dick’s Sporting Goods • Hibbett Sports • Sports Authority • Footlocker • Walmart

7. Largest Sporting Goods Stores http://finance.yahoo.com/q/in?s=CAB+Industry

8. Financial Metrics http://finance.yahoo.com/q/in?s=CAB+Industry

9. Historical Performance http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9103634-812-548334&type=sect&dcn=0001267130-13-000023

10. Industry Risk • Decline in discretionary consumer spending (non essential goods) • Unseasonal weather conditions • Difficult economic conditions • Consumer spending, oil prices, unemployment rates, etc. • Cyber security breaches (Target) • Decreased consumer confidence • Political and economic uncertainty in foreign countries • Many vendors are located in countries such as China, Mexico and various Eastern Asian and European countries • Political unrest, wars, work stoppages etc. • Current and future government regulations (firearms) • Laws and regulations related to hunting and fishing licenses • State and Federal regulations related to items such as firearms

11. Special Note Regarding Forward Looking Statements • This report contains “forward-looking statements” that are based on our beliefs, assumptions, and expectations of future events, taking into account the information currently available to us.  All statements other than statements of current or historical fact contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act.  The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “plan,” and similar statements are intended to identify forward-looking statements.  Forward-looking statements involve risks and uncertainties that may cause our actual results, performance, or financial condition to differ materially from the expectations of future results, performance, or financial condition we express or imply in any forward-looking statements.  These risks and uncertainties include, but are not limited to: http://yahoo.brand.edgar-online.com/displayfilinginfo.aspxFilingID=9103634-812-548334&type=sect&dcn=0001267130-13-000023

12. Cabela’s • Background: • Was founded in 1961 and has been a leader in outdoor gear since • Leading retailer in hunting, fishing and outdoor gear • Went public in June 2004 • Financial Information: https://www.google.com/finance?q=NYSE%3ACAB&ei=rT7WUqCQBc31qAGP1AE

13. Retail Business • Customer Relations • Retail Store Format • Retail Store Expansion Strategy • Store Locations and ownership

14. Retail Store Format • Retail store range in size from 40,000 to 246,000 square feet • Large retail store (150,000 square feet or larger) are referred to as legacy stores • Intended to provide a tourist like shopping experience (competitive advantage?) • “Next Generation” stores will be smaller in size (70,000 to 100,000 square feet) • Goal is to increase returns on invested capital

15. Legacy Store “Experience”

16. Retail Store Expansion Strategy • Store Expansion Plans: • 2013 – Opened seven “next generation” stores • 2014 - Plan to open five “next generation” stores

17. Operational risk due to uncertainty • The state of the economy and the level of discretionary consumer spending, including changes in consumer preferences and demographic trends • Increasing competition in the outdoor sporting goods industry • The availability of our products due to political or financial instability in countries where the goods we sell are manufactured • Increased or adverse government regulations, including regulations relating to firearms and ammunition

18. Income from Operations https://www.google.com/finance?q=NYSE%3ACAB&fstype=ii&ei=0z7WUpDELdLtrAHTxgE

19. Seasonality Nature of Industry https://www.google.com/finance?q=NYSE%3ACAB&fstype=ii&ei=0z7WUpDELdLtrAHTxgE