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Module 8 : Valuation Using Abnormal Income Growth

Module 8 : Valuation Using Abnormal Income Growth. Mairin Talerico. Snapshot of Toyota. Limited liability, joint-stock company incorporated under Commercial Code of Japan; started in 1930s Primarily in automotive industry, but also financial services and others

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Module 8 : Valuation Using Abnormal Income Growth

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  1. Module 8: Valuation Using Abnormal Income Growth Mairin Talerico

  2. Snapshot of Toyota Limited liability, joint-stock company incorporated under Commercial Code of Japan; started in 1930s Primarily in automotive industry, but also financial services and others Sold 9.98 million vehicles in fiscal 2013 Sell in 170 different countries and regions Primary markets: Japan, North America, Europe and Asia

  3. Auto Manufacturing – At a Glance TM F GM

  4. SWOT Analysis Strengths Opportunities Research and Development initiatives A leader in green cars development Selling in Japan and North American markets Geographically expansive manufacturing locations Toyota Motor Credit Credit Corporation [49% US Sales had financing] Develop environmentally friendly vehicles and technologies Safe vehicles Ability to increase market share in growing economies and markets Sustainable growth and optimal supply of products globally Finance more cars and increase profits Growth through acquisitions

  5. SWOT Analysis Cont. Weaknesses Threats Product recalls Always staying abreast of new technology and financial offerings Abiding by all gov’t regulations and legal proceedings Declining sales in Europe 51% US Sales don’t have financing Weak presence in emerging markets Brand reputation Worldwide auto market is highly competitive, volatile + Financial services industry Decrease profit Risk losing a major market for sales Highly competitive financial services industry

  6. Used Bloomberg’s WACC

  7. Discounted Cash Flow Model

  8. Residual Enterprise Income Model

  9. Abnormal Enterprise Income Growth Model

  10. Enterprise Value Comparison • My calculated Enterprise Value is similar to Yahoo! Finance’s EV. • $342,373 billion vs $349,460 billion SELL

  11. What is the agr Model? • Model anchors on next period’s income, not book value • Cum-FCF EPAT is compared to last year’s EPAT grown at the cost of capital • agrt [EPATt + rEnt ∙ FCFt-1 – (1+rEnt) ∙ EPATt-1] • Mathematically = to DCF model; but captures value within the time period instead of the continuing value • Agr explains the premium of market value over capitalized EPAT

  12. Comparing the Valuation Models Agr model captures more value added within the period

  13. Questions?

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