QCF MASTER 2011-2012

FUNDAMENTAL & TECHNICAL ANALYSIS
NGUYEN QUANG JVN 2011

COURSE OUTLINE
• Objective: give an analytic method for valuing a corporate (fundamental analysis) and forecast short-term stock price change (technical analysis) • 1st week: FA; 2nd week: TA • Project: choose FA or TA (valuing a company or writing an automatic backtesting/trading system) • Exam: Jan/2012
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COURSE OUTLINE
• Thought we suppose that stock price is a random variable, we will "try" somehow to predict it (statistically) • What may change the stock price of ABC be tomorrow, next month, next year?
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VNM 11/14/2011 4 .

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next month. next year. next five year.? – – – – ? ? ? ? • Categorize them into: fundamental and technical reasons 11/14/2011 6 ..COURSE OUTLINE • What may change the stock price of ABC be tomorrow...

EAV afternoon: external seminar Textbook: Fundamentals of Corporate Finance 3rd. Marcus 11/14/2011 7 . Financial statements. by Richard A. IRR. Brealey. Stewart C.FA schedule • Monday morning: Introduction. Myers and Alan J. afternoon: exercise • Tuesday morning: Financial Analysis • Wednesday morning: Valuation afternoon: exercise • Thursday morning: Project • Friday morning: Cost of capital. NPV.

1st class schedule • Chapter 1 – Corporate – Financial Institutions & Markets • Chapter 2 (reading) – Time value of money • Chapter 3 – Financial plan – Financial statements • Exercise 11/14/2011 8 .

Organizing a Business (1) • Sole proprietorships • Partnerships • Corporations 11/14/2011 9 .

Thus as sole proprietor you have unlimited liability. You bear all the costs and keep all the profits – Easy to be established and the lack of regulations governing it. – You are responsible for all the business’s debts and other liabilities. It could force you into personal bankruptcy if the business debts are big enough.Organizing a Business (2) • Sole proprietorships – Start your own business. the bank has a claim against your personal belongings. 11/14/2011 10 . If the business borrows from the bank and subsequently cannot repay the loan.

But eventually these companies and their financing requirements grew too large for them to continue as partnerships. such as Microsoft and Apple Computer. and management consulting firms. and Goldman Sachs started life as partnerships. legal. (large accounting. Merrill Lynch.) Most large investment banks such as Morgan Stanley. So did many well-known companies. Salomon. – Partners. Smith Barney. 11/14/2011 11 ... – Many professional businesses are organized as partnerships.. have the disadvantage of unlimited liability. like sole proprietors.Organizing a Business (3) • Partnerships – pool money and expertise with friends or business associates – Your partnership agreement will set out how management decisions are to be made and the proportion of the profits to which each partner is entitled.

which in turn appoints the top managers. a business may be able to attract a wide variety of investors. They have limited liability.Organizing a Business (4) • Corporations – As your business grows. By organizing as a corporation. you may decide to incorporate – Unlike a proprietorship or partnership. The separation between management and ownership gives a corporation more flexibility and permanence than a partnership – Similarly. 11/14/2011 12 . today’s shareholders may sell all their shares to new investors without affecting the business. who are not personally liable for the business’s liabilities. – Stockholders of a corporation own the firm. a corporation is legally distinct from its owners. they elect a board of directors.

If shares are widely traded.Organizing a Business (5) • Corporations – Management complex – Tax disadvantage – If shares (hold by a small group) are not publicly traded and your company is closely held. such corporations are known as public companies 11/14/2011 13 .

and patents) • Financial assets – Claims to the income generated by real assets. Also called securities. factories. and offices) or intangible (such as technical expertise. trademarks. 11/14/2011 14 .Financial Managers (1) • Real assets – Assets used to produce goods and services. • Financial managers: stand between the firm’s real assets and the financial markets in which the firm raises cash – CAPITAL BUDGETING DECISION: Decision as to which real assets the firm should acquire – FINANCING DECISION Decision as to how to raise the money to pay for investments in real assets. Tangible (such as machinery.

Financial Managers (2) 11/14/2011 15 .

In the second. a part-owner of the firm. it can invite investors to put up cash in return for a share of profits or it can promise investors a series of fixed payments. the investor becomes a lender who must one day be repaid. • The choice of the longterm financing mix is often called the capital structure decision. the investor receives newly issued shares of stock and becomes a shareholder.Financial decision • When a company needs financing. 11/14/2011 16 . since capital refers to the firm’s sources of long-term financing. • But the financial manager is also involved in some important short-term decisions. and the markets for long-term financing are called capital markets. In the first case.

11/14/2011 17 .Financial institutions & market Bank Insurance company Fund Financial Why is a financial intermediary different from a manufacturing corporation? •First. bonds. equipment. it may raise money differently. The manufacturing company’s main investments are in plant. or loans to businesses or individuals. for example. it invests that money in financial assets. in stocks. for example. and other real assets. by taking deposits or selling insurance policies. •Second.

Pooling Risk 11/14/2011 18 .Financial institutions & market (2) • When large firm could raise funds directly from investors. Borrowing and Lending. • In addition to helping companies raise new cash. The sale is usually managed (guaranteed) by investment banks • A new issue of securities is known as a primary issue and it is sold in the primary market. they sell financial assets to the public (if it's the first time: IPO). • Financial institutions and markets also have other function. Such purchases and sales known as secondary transactions and they take place in the secondary market. financial markets also allow investors to trade stocks or bonds between themselves. such as The Payment Mechanism.

Reading • Chapter 2: Time value of Money 11/14/2011 19 .

Financial plan (page 98) 11/14/2011 20 .

11/14/2011 21 .Planning model (1) • Example .Executive (or QCF) Cheese Company • Past year • The firm’s financial planners forecast that total sales next year will increase by 10 % • Then use the PERCENTAGE OF SALES MODELS: Planning model in which sales forecasts are the driving variables and most other variables are proportional to sales.

$120 = $100 11/14/2011 22 .borrow more $80 – Equity: No need to issue new share .Planning model (2) • New Income statement • How to finance? – Keep the same debt/equity level .retaining $120 of income – Planning dividend = $220 .

balancing item • If dividend payment is determined independently (shareholders' interest) -> then debt/equity ratio becomes balancing item • How to finance: retain $40 and borrow $160 11/14/2011 23 .Planning model (3) • Dividend payment depends on other decision (debt/equity ratio maintenance) .

Planning model (4) • Now put more stuff into… 11/14/2011 24 .

Planning model (5) • Forecast • Balance sheet is no more balanced! – Somehow the firm will need to raise an extra $64.External financing is the balancing item 11/14/2011 25 .000? .

Planning model (6) • Raise by debt 11/14/2011 26 .

Planning model (7) • Exercise: build the QCF fruit spreadsheet 11/14/2011 27 .

External financing and growth • External financing when the firm does not need external funding? 11/14/2011 28 .

External financing and growth • Internal growth rate 11/14/2011 29 .

External financing and growth • Sustainable growth rate The firm issues only enough debt to keep its debt-equity ratio constant. – Proof: exercise 11/14/2011 30 . The sustainable growth rate is the highest growth rate the firm can maintain without increasing its financial leverage.

Financial statements • The Balance Sheet – already learned • The Income Statement – already learned • The Statement of Cash Flows – a little bit more tricky 11/14/2011 31 .

• Asset that are likely to be used or turned into cash in the near future.The Balance Sheet (1) • A snapshot of the firm’s assets and the source of the money that was used to buy those assets • The accountant puts the most liquid assets at the top of the list and works down to the least liquid. 11/14/2011 32 . They are therefore described as current assets.

It depends on the benefits that investors expect the assets to provide.The Balance Sheet (2) • Depreciation: rule of thump: allocate the original cost of the asset over its life (may not reflect actual loss of market value) • Current liability: liabilities that are likely to be paid off most rapidly • Net current asset (net working capital) = current asset . especially for large fixed asset (same for long-term liability) • The book value of equity measures the cash that shareholders have contributed in the past plus the cash that the company has retained and reinvested in the business on their behalf • The market value balance sheet is forward-looking.current liability • What is left over after the liabilities have been paid off belongs to the shareholders • Book value (value appear in the BS) could be different from market value. 11/14/2011 33 .

The Income Statement • It shows how profitable the firm has been during the past period 11/14/2011 34 .

The Statement of Cash Flow • Difference between profit and Cash flow? 11/14/2011 35 .

plus the change in inventories: 11/14/2011 36 . – Sale and receivable: The cash that the company receives is equal to the sales shown in the income statement less the increase in unpaid bills: – Cost of production and inventories: The cash outflow is equal to the cost of goods sold.The Statement of Cash Flow • Difference between profit and Cash flow? – Depreciation vs Capital expenditure: To calculate the cash produced by the business it is necessary to add back the depreciation charge (which is not a cash payment) and to subtract the expenditure on new capital equipment (which is a cash payment). which is shown in the income statement.

11/14/2011 37 .The Statement of Cash Flow • The statement of cash flows shows the firm’s cash inflows and outflows from operations as well as from its investments and financing • It contains three sections: – The first shows the cash flow from operations. – Next comes the cash that the firm has invested in plant and equipment or in the acquisition of new businesses. – The final section reports cash flows from financing activities such as the sale of new debt or stocks.

The Statement of Cash Flow 11/14/2011 38 .

Case study • Vinamilk 2009-2010 11/14/2011 39 .

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