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Module 9 : Valuation of Equity

Module 9 : Valuation of Equity. 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 Sold 9.98 million vehicles in fiscal 2013

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Module 9 : Valuation of Equity

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  1. Module 9: Valuation of Equity 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. Value of Equity NFL=$43,917 Value of Enterprise= $342,373 Therefore, $342,373-43,917=$298,456  Value of Equity = $86.58/share This equation calculates Equity Value by way of the Enterprise valuation. This presentation finds the value of equity directly, with a key assumption that leverage is constant going forward.

  7. Target Price

  8. Using Analyst Forecasts Using forecasts to obtain growth rate for EPS and DPS ) -1= 5.07% DPS -1=9.74%

  9. Valuing Toyota Using the growth rates previously calculated for EPS and DPS: Book value = Bk value(t-1) + EPS - DPS

  10. Equity Valuation using Dividend Discount Model ValueLine’s Forecast of Toyota

  11. Equity Valuation using Residual Income Model Issue of negative growth in Residual Earnings and negative residual earnings in 2019

  12. Adjusting Date of Value Estimate Last full year reported 3/31/2013 [2013 10K] Forecast using estimated future value of book value for 2014 using estimates from mod 7 Mid Year adjustment – models assume payoffs happen at year end. Adjustment to approximate payoffs occurring evenly throughout the year

  13. Sensitivity Analysis Perform the analysis on variables we are least comfortable with. In this case, return on enterprise (WACC) and sales growth Sell Buy Sell Buy

  14. Questions?

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