财务报表分析与证券估值全套配套课件英文PPT中文PPT案例教学建议Chap018.ppt

财务报表分析与证券估值全套配套课件英文PPT中文PPT案例教学建议Chap018.ppt

ChapterEighteenMcGraw-Hill/IrwinCopyright©2013byTheMcGraw-HillCompanies,Inc.Allrightsreserved. Chapter18Preparedby:StephenH.Penman–ColumbiaUniversityWithcontributionsbyNirYehuda–NorthwesternUniversityMingcherngDeng–UniversityofMinnesotaPeterD.EastonandGregoryA.Sommers–NotreDameandSouthernMethodistUniversitiesLuisPalencia–UniversityofNavarra,IESEBusinessSchool18-2 WhatYouWillLearnfromthisChapterHowaccountingmethodsandestimatesaffectthesustainabilityofearningsWhat“qualityofearnings”means.TheaccountingdevicesthatmanagementcanusetomanipulateearningsHowfirmcantimetransactionstodeterminetheirearningsWhatdisclosurequalitymeansSituationswhereaccountingmanipulationismorelikelyWhychangeinnetoperatingassetsisthefocusofaqualityanalysisHowdiagnosticsaredevelopedtodetectmanipulationinfinancialstatementsHowqualityscoringworks18-3 TheBigPictureforthisChapterAccountingqualityanalysisestablishestheintegrityoftheaccountingusedforforecastingHowincomeshiftingworks:AccountingmethodscanbeappliedtoborrowincomefromthefuturepushincomefromthepresenttothefutureBut,thisincomeshiftingleavesatrailthatcanbefollowedbythequalityanalyst18-4 FiveQuestionsAboutAccountingQualityGAAPquality:isGAAPaccountingdeficient?Auditquality:isthefirmviolatingGAAPorcommittingoutrightfraud?GAAPapplicationquality:isthefirmusingGAAPaccountingtomanipulatereports?Transactionquality:isthefirmmanipulatingbusinesstoaccommodatetheaccounting?TransactiontimingTransactionstructuringDisclosurequality:aredisclosuresadequatetoanalyzethebusiness?DisclosuresthatdistinguishoperatingitemsfromafinancialitemsinthestatementsDisclosuresthatdistinguishcoreoperatingprofitabilityfromunusualitemsDisclosuresabouttheaccountingused18-5 DetectingIncomeShifting:TheAccountingLeavesaTrailOnetrail:“Hard”“Soft”Afurthertrail:CapitalizationQualityAccrualQuality18-6 LowQualityAccountingandRNOAForvaluation,theanalystwantstoforecastfutureRNOA.Ifthereismanipulation,currentRNOAcannotbemaintainedinthefuture.Manipulationhasthefollowingeffects:AsRNOA0=OI0/NOA-1,manipulationinvolvesadjustingcurrentoperatingincome,OI0ButOI0=FreeCashFlow0+DNOA0“Hard”“Soft”SoachangeinOI0mustalsochangeNOA0bythesameamountSofutureRNOA1=OI1/NOA0mustbereduced:DenominatoreffectNumeratoreffect18-7 HowAccountingManipulationLeavesaTrailintheBalanceSheet(1)18-8 HowAccountingManipulationLeavesaTrailintheBalanceSheet(2)TheCaseofNoGrowthwithIncomeShifting18-9 HowAccountingManipulationLeavesaTrailintheBalanceSheet(3)TheCaseofGrowthwithNoIncomeShifting18-10 HowAccountingManipulationLeavesaTrailintheBalanceSheet(4)TheCaseofGrowthwithIncomeShifting18-11 TwoDirectionsforManipulationBorrowingincomefromthefutureIncreaseincurrentrevenueDecreaseincurrentexpensesBankingincomeforthefutureDecreasecurrentrevenueIncreasecurrentexpensesDistinguish:ConservativeAccountingvs.LiberalAccountingAggressiveAccountingvs.BigBathAccountingBothincreasecurrentNOABothreducecurrentNOAAmatterofAccountingPolicyAmatterofshort-termapplicationofaccountingthatwillreverse18-12 HowSpecificBalanceSheetItemsareManagedtoIncreaseIncome18-13 HowSpecificBalanceSheetItemsareManagedtoIncreaseIncome(cont)18-14 PreludetoaQualityAnalysisUnderstandthebusinessUnderstandtheaccountingpolicyUnderstandthebusinessareaswhereaccountingqualityismostdoubtfulUnderstandsituationsinwhichmanagementareparticularlytemptedtomanipulate18-15 FlashPoints:AccountingAreaswhereManipulationisMoreLikelyIndustryFlashPointBankingCreditlosses:qualityofloanlossprovisionsComputerhardwareTechnologicalchange:qualityofreceivablesandinventoryComputersoftwareMarketabilityofproducts:qualityofcapitalizedresearchanddevelopmentRevenuerecognition:qualityofreceivablesanddeferredrevenueRetailingCreditlosses:qualityofnetaccountsreceivableInventoryobsolescence:qualityofcarryingvaluesofinventoryRebateprograms:quantityofsalesandestimatedliabilitiesManufacturingWarranties:qualityofwarrantyliabilitiesProductliability:qualityofestimatedliabilitiesAutomobilesOvercapacity:qualityofdepreciationallowancesTelecommunicationsTechnologicalchange:qualityofdepreciationallowances18-16 FlashPoints:AccountingAreaswhereManipulationisMoreLikelyIndustryFlashPointEquipmentleasingLeasevalues:qualityofcarryingvaluesforleasesTobaccoLiabilitiesforhealtheffectsofsmoking:qualityofestimatedliabilitiesPharmaceuticalsR&D:qualityofR&DexpendituresProductliability:qualityofestimatedliabilitiesRealestatePropertyvalues:qualityofcarryingvaluesforrealpropertyAircraftandshipRevenuerecognition:qualityofestimatesunderpercentageofmanufacturingcompletionmethodand“programaccounting”SubscriberservicesDevelopmentofcustomerbase:qualityofcapitalizedpromotioncostsSubscriptionspaidinadvance:qualityofdeferredrevenue18-17 FlashPoints:InstitutionalSituationswhereManipulationisMoreLikelyThefirmisintheprocessofraisingcapitalorrenegotiatingborrowing.WatchpublicofferingsDebtcovenantsarelikelytobeviolatedAmanagementchangeAnauditorchangeManagementrewards(likebonuses)aretiedtoearningsManagementisrepricingexecutivestockoptionsAweakgovernancestructure:insidemanagementdominatetheboard;thereisaweakauditcommitteeornoneatallRegulatoryratiorequirements(likecapitalratiosforbanksandinsurancecompanies)arelikelytobeviolatedTransactionsarewithrelatedpartiesratherthanatarm"slengthSpecialeventssuchasunionnegotiationsandproxyfightsThefirmis"inplay"asatakeovertargetThefirmengagesinexoticarrangements(structuredoff-balance-sheetvehicles)18-18 AchangeinaccountingprinciplesorestimatesAnearningssurpriseAdropinprofitabilityafteraperiodofgoodprofitabilityConstantsalesorfallingsalesEarningsgrowingfasterthansalesVerylowearnings(thatmightbealosswithoutmanipulation)Smallorzeroincreasesinprofitmargins(thatmightbeadecreasewithoutmanipulation)Afirmmeetsanalysts’earningsexpectations,butjustso.DifferencesinexpensesfortaxreportingandfinancialreportingFinancialreportsareusedforotherpurposes,liketaxreportingandunionnegotiations.AccountingadjustmentsinthelastquarteroftheyearFlashPoints:FinancialStatementIndicatorsthatManipulationisMoreLikely18-19 IPOsandManipulation18-20 OverviewofDiagnosticstoDetectManipulation18-21 DiagnosticstoDetectManipulatedSalesNetSales=CashfromSales+DNetAccountsReceivable+DAllowanceforsalesreturns+DUnearnedrevenueDiagnostic:NetSales/CashfromSalesDiagnostic:NetSales/NetAccountsReceivableDiagnostic:BadDebtExpense/ActualCreditLossesDiagnostic:BadDebtReserves/AccountsReceivable(Gross)Diagnostic:BadDebtExpense/SalesDiagnostic:Netsales/AllowanceforreturnsDiagnostic:Netsales/unearnedrevenue18-22 RedFlags:Revenue18-23 RedFlags:Revenue(continued)18-24 DiagnosticstoDetectManipulatedSalesNetSales=CashfromSales+DNetAccountsReceivableDiagnostic:SalesReturnExpense/ActualSalesReturnsDiagnostic:SalesReturnReserves/AccountsReceivable(Gross)Diagnostic:SalesReturnExpense/SalesDiagnostic:WarrantyExpense/ActualWarrantyClaimsDiagnostic:WarrantyLiabilities/AccountsReceivable(Gross)Diagnostic:WarrantyExpense/Sales18-25 DiagnosticstoDetectManipulatedExpensesInvestigateChangesinNOAwithNormalizedATOOI=FreeCashFlow+DNOA“Hard”“Soft”So,DNOAistobeinvestigated:DNOA=Cashinvestment+newoperatingaccruals“Hard”“Soft”Diagnostic:RestatedOI/OIRestatedOI=FreeCashFlow+DSales/NormalATOThisworksifsalesarenotmanipulated18-26 RedFlag:UnusualGrowthinNOA18-27 DiagnosticstoDetectManipulatedExpensesInvestigateChangesinATO18-28 RedFlags:UnusualChangesinATO18-29 DiagnosticstoDetectManipulatedExpensesInvestigateLineItemsDirectlyChallengedepreciationandamortizationexpenseDiagnostic:Adjustedebitda=OI(beforetax)+DepreciationAmortization–NormalCapitalExpenseNormalcapitalexpenseisapproximatedbytheaveragecapitalexpenditureoverpastyearsornormaldepreciationandamortizationforthelevelofsales,calculatedfrompast(Depreciation+Amortization)/Salesratios18-30 RedFlags:DepreciationandAmortization18-31 DiagnosticstoDetectManipulatedExpensesChallengetotalaccrualsDiagnostic:CFO/OIDiagnostic:CFO/AverageNOAChallengeindividualaccrualsDiagnostic:Accruals/DSales(Step3continued)18-32 RedandGreenFlags:UnusualAccrualsARedFlag.SharedMedicalSystems,asupplierofinformationsystemstohospitalsandphysicians,reportedearningsof$18.3millioninitsfirstquarterof1999,almostunchangedfromthepreviousquarter.Howeverrevenuesdeclinedfrom$339.3millionto$287.1million.Levelorincreasingearningsondecliningsalesalwayswavesaredflag.Thecashflowstatementrevealedfurtherones:Accruedexpensesdeclinedfrom$86.5millionto$61.5millionandtheamountofcomputersoftwarecapitalizedinthebalancesheetincreasedfrom$75.7millionto81.1million.Manipulationorlegitimatebusiness?Well,earningssignificantlyincreasedthroughoutthenextyear,onrisingrevenues,soareversalwasnotapparent.AGreenFlag.MicrosoftCorporationwritessoftwarecontractswithmultipledeliverablesanddefersasignificantportionoftherevenueonthesecontracts.Attheendofits2005fiscalyear,deferredrevenuesstoodat$9.17billionor23.0percentofsales.Theprospectofthefirmbleedingthisdeferredrevenuebackintoincomeisreal,sotheanalysthasMicrosoftonawatch.In2005,thecashflowstatementrevealsthatMicrosoftadded$12.5billiontodeferredrevenueandtransferred$11.3ofdeferredrevenuetorevenuetotheincomestatement.Thereisnosignofanexcessivebleedback.18-33 RedandGreenFlags:UnusualAccruals(continued)ARedFlag.CiscoSystemsreportedrevenueof$4,816millionforitssecondquarterof2002upfromthe$4,448millionintheprecedingquarterandexceedingprojections.Itlookedliketherevenuedecline,fromthe$6,000millionperquarterin2001,wasover.However,thefirmpointedoutthat,forthefirsttime,deferredrevenuehadreversed:Thefirmhadrecognizedanunusuallylargeamountofrevenueonconditionalshipmentsfrompriorperiods.18-34 DiagnosticstoDetectManipulatedExpenses(Step3continued)(d)ChallengeexpensecomponentsthatdependonestimatesDiagnostic:Pensionexpense/TotaloperatingexpenseDiagnostic:Otherpostemploymentexpense/Totaloperatingexpense18-35 DiagnosticstoDetectManipulatedExpenses18-36 DiagnosticstoDetectManipulatedExpensesInvestigateBalanceSheetLineItemsDirectlyParticularsuspects:Assetswhosecarryingvaluesareabovetheirmarketvalues:thesearelikelyimpairmentcandidatesAssetswhosecarryingvaluesandamortizationratesaresubjecttoestimate:intangibleassets,goodwill,deferredtaxassets(particularlytheirvaluationallowances),non-typicalcapitalizationofexpensessuchasstart-upcosts,advertisingandpromotion,productdevelopment,andsoftwaredevelopmentcostsAssetsrecordedatestimatedfairvaluesEstimatedliabilitiessuchaspensionliabilities,otheremploymentliabilities,warranties,deferredtaxliabilities,deferredrevenue,andestimatedmergerandrestructuringcostsOff-balance-sheetliabilitiessuchasguarantees,recourseforassignedreceivablesordebt,purchasecommitments,andcontingentliabilitiesforlawsuitsandregulatorypenaltiesEnvironmentalliabilities(forcleanupofpollution)ObligationstoSpecialPurposeEntitiesEstimatedliabilities,suchaswarrantyliabilities18-37 RedFlag:FairValueAccounting18-38 TheCashFlowStatementisaSourceofInformationonAccruals18-39 DetectingTransactionTimingCoreRevenueTiming(ChannelStuffing)UnexpectedsalesincreasesordecreasesinthefinalquarterStructuringofleasetransactionstoqualifyassales-typeleasesinlessor’sbooksCoreExpenseTimingDiagnostic:R&DExpense/SalesDiagnostic:AdvertisingExpense/SalesWatchfortemporaryliquidationofhiddenreservesforfirmsusingconservativeaccounting(eg.LIFOdipping)CherrypickingforsalesofsecuritiesReleasinghiddenreserves18-40 RedFlag:ChannelStuffing18-41 RedFlag:LIFODipping18-42 DetectingTransactionStructuringRelatedpartytransactionsStructuringsales-typeleasesGrossingupcommissionsSwappinginventory18-43 ARedFlag:TransactionStructuring18-44 DetectingOrganizationalManipulationOff-Balance-SheetOperationsR&DPartnershipsPensionFundsSpecialpurposeentities18-45 FrustrationswithDisclosureQualityConsolidationaccountingoftenmakesthesourceofprofitabilityhardtodiscoverLineofbusinessandgeographicalsegmentreportingisoftennotdetailedenoughEarningsinunconsolidatedsubsidiariesarehardtoanalyze.(Thinkofafirmthathasallitsearningsinsubsidiariesinwhichithaslessthan50%ownership:coreprofitmarginsarenottransparent!)Disclosuretoreconcilefreecashflowinthecashflowstatementtofreecashflowcalculated(asOI-NOA)fromtheincomestatementandbalancesheet.SomeoftheproblemsarisefromuncertaintyaboutitemstobeincludedinOIandNOADisclosurestocalculatestockcompensationexpensearethinInformationisoftennotavailabletocalculatelossesonconversionofconvertibleclaimsintocommonequityDetailsonselling,generalandadministrativeexpensesareoftenscare18-46 CompositeQualityScoring18-47 ExamplesofCompositeScores18-48 DetectingSustainableRNOAwithanS-ScoreS=ProbabilitythatRNOAwillincreaseS=0.5indicatessustainableRNOA18-49 RewardstoSustainableEarningsAnalysisReturnstoportfoliothatgoeslongonfirmswithhighS-ScoresandshortonfirmswithlowS-Scores18-50