SWM - Mark Moore

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explanatory power of the estimated Beta. The highest Adjusted R-squared was found in the 24month of the one-year regression. This would tell investors that Schweitzer-Mauduit is more ofa short-term investment. The results of the best Adjusted R-squared for each horizon arebelow.Horizon Months MRP RF BetaBetaUpperBetaLower Adj. R2 KeKeUpperKeLower3 month 24 0.08 0.34 1.4863 2.3613 0.6112 0.3315 0.1529 0.2229 0.08281 year 24 0.08 0.34 1.4984 2.3646 0.6322 0.3404 0.1538 0.2231 0.08452 year 24 0.08 0.34 1.4986 2.3662 0.631 0.3396 0.1538 0.2233 0.08445 year 24 0.08 0.34 1.4969 2.3664 0.6275 0.3381 0.1537 0.2233 0.084210 year 24 0.08 0.34 1.4964 2.3664 0.6264 0.3376 0.1537 0.2233 0.0841The highest adjusted R-squared is 34.04% and has a beta of 1.49, which is not muchdifferent from the published beta from YAHOO! Finance of 1.46. A beta of 1.49 explains 34.04%of the overall risk of Schweitzer-Mauduit. The beta is put into the CAPM equation to determinethe cost of equity. The following equations show the cost of equity to be 12.32%. The upperand lower bounds are the 95% confidence intervals that show the cost of equity to be between5.44% and 19.28%Ke: 0.1232 = 0.004 + 1.49 (0.08)Ke lower: 0.0544 = 0.004 + 0.63 (0.08)Ke upper: 0.1928 = 0.004 + 2.36 (0.08)150
Size-Adjusted Cost of EquityThe CAPM is the most commonly used method in determining cost of equity, but someanalysts believe it may not be a complete method. The size-adjusted cost of equity is anothermethod that can be used to find the Ke. Size-adjusted cost of equity suggests that factorsother than systematic risk play a part in determining return, like size. Smaller firms are knownto give larger returns as larger firms give smaller returns. Size-adjusted Ke is used to take intoaccount the varying sizes of firms. The size-adjusted cost of equity can be found with thefollowing formula:Ke = Risk Free Rate + Beta(<strong>Mark</strong>et Risk Premium)Size Adjusted Ke: 0.1462 = 0.004 + 1.49 (0.08) + 0.023Size-adjusted cost of equity is essentially the same as the CAPM plus size premium. Sizepremium is determined by size deciles ranging from 1 to 10. 1 represents the smallest firmsand progresses to 10, which represents the largest firms. <strong>Mark</strong>et capitalization is used todetermine which decline a firm is located in. We calculated Schweitzer-Mauduit’s market cap tobe $780.55 million. This gives the firm a market size of 2.3%. The cost of equity is estimatedto be 14.62%, which is a reasonable estimate because it falls within the 95% confidenceinterval found earlier.Alternative Cost of Equity Estimation MethodThe alternative cost of equity estimation method, also known as the backdoor cost ofequity, is another method used to solve for Ke. This method takes into consideration thecurrently observed stock price. It is computed very differently from CAPM because it uses theprice to book ratio, ROE, and a growth rate. The price to book ratio considers the currentmarket price of the firm. We calculated the P/B ratio to be 2.53. ROE was computed byaveraging the forecasted lagged ROE’s for the next ten years, 2009-2018, which was 7.12%.151
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Schweitzer-Mauduit International,
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Buyers Willingness to Switch……
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Net Sales/Accounts Receivable……
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Enterprise/EBITDA………………
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Competitive ForceRivalry Among Exis
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they spend money devoted to R & D.
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The next part of our financial anal
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Company OverviewSchweitzer-Mauduit
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table also shows that SWM’s sales
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Competitive ForceDegree of Competit
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The size of the firms in the indust
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Total Assets 3500 3000 2500 2000 1
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Excess CapacityExcess capacity aris
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scale in the industry is vital to a
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1400 1200 1000 800 600 400 200 0 Pr
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RelationshipsThe relationships of t
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its product (indirectly), the threa
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it is easy for them to dictate the
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As far as the purpose of tobacco pa
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Volume per BuyersThe volume a buyer
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(SWM 10-K). Considering the overall
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Cost LeadershipCost leadership mean
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likely for the customer to return a
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of pride in being the “the world
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educing product costs. The governme
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It is evident when reading the tabl
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The second of the two accounting po
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SWM for the most part does a suffic
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Schweitzer-Mauduit and its competit
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their economic activity. If firms h
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contracts and, to a lesser extent,
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The ability to do this gives firms
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their sales in U.S. dollars to mini
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Schweitzer Mauduit 2004 2005 2006 2
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ConclusionThe accounting strategy a
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Schweitzer-Mauduit2004 2007 2006 20
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than capitalized. The only reason t
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5 Δ Sales/Cash from Sales 4 3 2
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Δ Net Sales/Accounts Receivable
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Δ Net Sales/Inventory 30 25 20 1
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0.3 CFFO/OI 0.25 0.2 0.15 0.1 0.05
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12 CFFO/NOA 10 8 6 4 2 SWM AOI UVV
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200 Δ Asset Turnover 150 100 50
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4 Δ Total Accurals/ Sales 2 0 -
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ConclusionThe ratios examined above
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of a firm’s financials. The firm
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Restated Income Statement For ye
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Research and Development Schweitz
Page 100 and 101: New taxes on Net IncomeIn millions
Page 102 and 103: Amortized Goodwill
Page 104 and 105: obligations in the past five years,
Page 106 and 107: 1.200 Quick Asset Ratio 1.000 0.8
Page 108 and 109: 2004 2005 2006 2007 2008SWM 25.9881
Page 110 and 111: comparison. A small ratio shows inv
Page 112 and 113: 6 Inventory Turnover 5 4 3 2 1 SWM
Page 114 and 115: 2004 2005 2006 2007 2008SWM 79.5248
Page 116 and 117: Profitability Ratio AnalysisProfita
Page 118 and 119: Operating Expense RatioThe operatin
Page 120 and 121: 15 Operating Pro`it Margin 10 5 0
Page 122 and 123: Net Profit Margin 2004 2005 2006 20
Page 124 and 125: Return on AssetsThe return on asset
Page 126 and 127: 40 Return on Equity 20 0 -20 -40
Page 128 and 129: Internal Growth Rate 2004 2005 2006
Page 130 and 131: industry average as much as it did
Page 132 and 133: Debt/Equity RatioThe debt-to-equity
Page 134 and 135: Schweitzer-Mauduit is at a low 1.61
Page 136 and 137: Mauduit has stayed pretty stable th
Page 138 and 139: it looks to keep declining, meaning
Page 140: Gross profit is the next step in fo
Page 143 and 144: Balance Sheet143
Page 145 and 146: liabilities, we take the already fo
Page 147 and 148: Statement of Cash FlowsThe statemen
Page 149: Estimating Cost of CapitalCost of E
Page 153 and 154: The table below shows the liability
Page 155 and 156: The cost of capital is the interest
Page 157 and 158: declared overvalued. Prices falling
Page 159 and 160: P/E ForecastedCompany PPS EPS P/E F
Page 161 and 162: Dividends/Price RatioCompany PPS DP
Page 163 and 164: Price/EBITDACompany Market Cap EBIT
Page 165 and 166: Price/Free Cash FlowCompany Market
Page 167 and 168: November 2, 2009 we had to calculat
Page 169 and 170: Schweitzer-‐Mauduit's Free Ca
Page 171 and 172: Now that we have calculated the tot
Page 173 and 174: subtracting the normal earnings for
Page 175 and 176: Long-Run Residual Income Valuation
Page 177 and 178: Cost of EquityReturn on Equity-0.14
Page 179 and 180: Growth RateReturn on Equity-0.14 -0
Page 181 and 182: Return on Equity RestatedGrowth Rat
Page 183 and 184: Once the industry analysis had been
Page 185 and 186: AppendicesSales Manipulation Diagno
Page 187 and 188: CFFO/ OI Change 2004 2005 2006
Page 189 and 190: UVV 2.170832 2.687889 2.78523 2
Page 191 and 192: Capital Structure RatiosDebt to Equ
Page 193 and 194: 3MonthRatesSUMMARY OUTPUT Regressio
Page 195 and 196: Coefficients Intercept 0.035115 X
Page 197 and 198: Total 71 0.987349 Intercept X Vari
Page 199 and 200: Total 35 0.775347 Intercept X Vari
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Total 59 1 2 0.939751 Coefficients
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Total 23 3 5 0.624714 Coefficients
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Residual Total 46 47 0.624852 0.848
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Residual Total 70 71 1 1 6 0.7615
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Residual Total 34 35 0.519917 0.775
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Price Earnings Growth(P.E.G.)Compan
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Discounted Free Cash Flowt 0 1 2 3
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Price(11/1/1988)Initial Costof Equi
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Figures in Millions (Except per S
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Growth Rate RestatedReturn on Equit
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Return on EquityGrowth RateKe -30%
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Schweitzer-‐Mauduit Restated
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Heakal, Reem. "What Are Economies o
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SWM - Mark Moore

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