Equity Valuation and Analysis - Mark Moore

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Chlorine Ethylcellulose Hydroxyethylcellulose Methyl Cellulose Methylene Chloride Perchlorethylene Thioglycolic Acid Diethylenetraimine Glutaradehyde Hydroxypropyl Methycellulose Methyl Chloride Methy Glucosidederatives Polypropylene Glycols Trichlorethyene (www.chemweek.com/bluebook.pdf) Economies of Scale/ Learning Economies In order for it to maintain its leverage over the competition, a company must employ a larger, more specialized workforce than its rivals. “The scope of production encompasses nearly 12% of European manufacturing’s added value” (Wikipedia.org). With sales forecast predicting stable levels of growth over the next few years, many firms in this industry have made plans to expand their operations in hopes of capturing more market share from competitors. Total Assets (in millions) 2001 2002 2003 2004 2005 2006 DOW 35,515 39,562 41,891 45,885 45,934 45,581 HUN 4,827 5,044 8,737 9,437 8,871 8,445 LYO 6,703 7,448 7,633 15,928 15,089 17,846 DD 40,319 34,621 37,039 35,632 33,291 31,777 Dow Chemical Analysis Page 18
It is also important to note that this industry is identified with having a very adaptive learning curve. Essentially what this means is that as soon as a company introduces a new and innovative product on the market, the competitors in that industry are quick to copy the design and exploit it. This process ensures that any form of differentiation is avoided. Fixed assets to Variable Costs ratio: FA/VC Ratio 2001 2002 2003 2004 2005 2006 DOW 0.5683 0.5802 0.5046 0.4038 0.3537 0.3304 HUN 0.7118 0.7868 0.8052 0.6163 0.5124 0.4468 LYO 1.2945 0.8175 0.7335 1.3205 0.3959 0.4626 DD 0.7943 0.758 0.4763 0.5194 0.495 0.5136 The fixed asset to variable costs ratio serves as an excellent tool to help measure the degree of competition within an industry. If a company was to have a high FA/VC ratio, then that would indicate that the firm is committed to the industry and must continue its operations rather than temporarily cease production. As the graph above indicates, the industry is very liquid, especially for all competitors. The reason this might be, is attributable to the constant acquisitions and sale of property, plant, and equipment by companies such as Lyondell, who openly trade fixed assets on the open market. Excess Capacity Dow Chemical Analysis Page 19
Page 1 and 2: Equity Valuation and Analysis Frank
Page 3 and 4: Executive Summary Investment Recomm
Page 5 and 6: Accounting Analysis When analyzing
Page 7 and 8: Valuations In determining Dow’s c
Page 9 and 10: in July of 2006. Comparing Dow’s
Page 11 and 12: Dow provides consumers with special
Page 13 and 14: States as well as some smaller area
Page 15 and 16: ample amount of excess capacity. Gi
Page 17: Market Share within United States 5
Page 21 and 22: First we must consider scale of eco
Page 23 and 24: The bargaining power of buyers can
Page 25 and 26: Price sensitivity of suppliers in t
Page 27 and 28: cases, firms will choose to impleme
Page 29 and 30: strategy to gain or maintain market
Page 31 and 32: cannot compete on a large scale of
Page 33 and 34: approximately $600-800M/yr. It is t
Page 35 and 36: company with the most innovative, c
Page 37 and 38: identification of accounting polici
Page 39 and 40: Post-Retirement Benefit Plans The c
Page 41 and 42: As seen in previous figures, firms
Page 43 and 44: policies. These variations can acco
Page 45 and 46: certain numbers effecting key succe
Page 47 and 48: Operating leasing is considered a r
Page 49 and 50: transparent view of how a company o
Page 51 and 52: cards. In a perfect sales environme
Page 53 and 54: The inventory turnover is key indic
Page 55 and 56: The Asset Turnover ratio is one way
Page 57 and 58: This ratio is an indication of how
Page 59 and 60: determined that they were easily wi
Page 61 and 62: shown growth approaching just under
Page 63 and 64: inventories within a year; therefor
Page 65 and 66: how efficient a company is in exten
Page 67 and 68: inventory sit on the shelves, the l
Page 69 and 70:
Liquidity Overview In the overall s
Page 71 and 72:
OPERATING PROFIT MARGIN 2002 2003 2
Page 73 and 74:
Net Profit Margin 2002 2003 2004 20
Page 75 and 76:
Return on Assets 15% 10% 5% 0% -5%
Page 77 and 78:
interest requirements on debt” (R
Page 79 and 80:
to fall into debt financing and pos
Page 81 and 82:
endeavors and cash flows. In 2006,
Page 83 and 84:
Financial Statement Forecasting Ana
Page 85 and 86:
Income Statement When forecasting t
Page 87 and 88:
Balance Sheet To start on the balan
Page 89 and 90:
To find the forecast for total liab
Page 91 and 92:
Statement of Cash Flows Seeing as c
Page 93 and 94:
Cost of Debt Liabilities Source Int
Page 95 and 96:
acquired at a rate of Ke. These 2 s
Page 97 and 98:
Trailing method divides the given p
Page 99 and 100:
DIVIDEND PPS D/P HUN N/A DD 1.48 48
Page 101 and 102:
EBITDA PPS P/EBITDA HUN 0.7365 18.9
Page 103 and 104:
EBITDA EV EV/EBITDA HUN 0.7365 7.23
Page 105 and 106:
financial statement, and a calculat
Page 107 and 108:
Out of all of the intrinsic valuati
Page 109 and 110:
This sensitivity analysis was used
Page 111 and 112:
fairly valued would be to have a RO
Page 113 and 114:
Net Sales/Cash from sales 2002 2003
Page 115 and 116:
Altman Z-score 2002 2003 2004 2005
Page 117 and 118:
SUMMARY OUTPUT 36 Month Regression
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
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Equity Valuation and Analysis - Mark Moore

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