SWM - Mark Moore

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Growth Rate RestatedReturn on Equity-0.16 -0.08 0 0.08 0.16 0.24 0.328.39% -‐38.03 -19.02 - 19.02 38.03 57.05 76.079.70% -‐33.23 -16.61 - 16.61 33.23 49.84 66.46Cost of 11.01% -‐29.57 -14.78 - 14.78 29.57 44.35 59.13Equity 12.32% -‐26.68 -13.34 - 13.34 26.68 40.02 53.3613.63% -‐24.35 -12.18 - 12.18 24.35 36.53 48.714.94% -‐22.43 -11.21 - 11.21 22.43 33.64 44.8616.25% -‐20.82 -10.41 - 10.41 20.82 31.23 41.6315% Analyst Position Undervalued > $58.6 $58.60 < Fairly Valued < $43.31 Overvalued < $43.31 Analysis RecommendationUpon completion of our extensive research and analysis on Schweitzer-Mauduit we havedetermined that the firm is significantly overvalued. Our conclusion was based on the resultsfrom an in depth industry analysis, accounting analysis, forecasted financials, and an intrinsicand sensitivity analysis. The main portion that led us to this determination was from theforecasted financials and the intrinsic valuation models.By first analyzing the paper and tobacco industry we were able to identify and evaluateSchweitzer-Mauduit’s compared to its competitors. Additionally, we were able to determinemanagerial policies for the firms and competitive advantages firms held over one another.182
Once the industry analysis had been observed, an accounting analysis took place allowing anoverview of the firm’s truthfulness in its financial statements. From the analysis it wasunderstood that the impairment of research and development would need to be capitalized andrestated. By capitalizing research and development, more accurate expense and revenue levelscan be documented, as well as restated net income levels. After conducting the tests forimpairment of goodwill, it was concluded that it would not need to be restated.From the financial analysis we were able to establish levels of liquidity, profitability, andcapital structure for Schweitzer-Mauduit, its competitors, and the industry. By establishing salesand expense manipulation ratios, as well as liquidity and profitability ratios, we were able todetermine that Schweitzer-Mauduit does not exceed nor fall behind its competitors in theindustry. From the analysis it is shown that Schweitzer-Mauduit did not manipulate its financialstatements to depict more favorable financial positions. Research and development did have tobe restated; however it did not make any major impacts on the financial statements. Goodwilldid not need to be restated as it did not represent a large enough portion of total assets.Additionally in the financial analysis, we were able to forecast future expectations for the firm.By analyzing the industry and historical evidence from the firm we were able to establishgrowth rates. These rates and previously discovered ratios allowed us to forecast the incomestatement, balance sheet, and the statement of cash flows. When forecasting the incomestatement, sales dropped by two percent in 2009 in response to the recent recession sweepingthe country. In 2010 sales recovered and returned to a six percent growth rate and began tolevel off following 2010.In order to forecast the balance sheet, the asset turnover ratio was computed to be 1.0.Other ratios used to forecast the balance sheet were the accounts receivable ratio computed tobe 8.9, inventory turnover calculated at 5.8 and the plant property and equipment turnoverratio at 1.9. The statement of cash flows was forecasted using logically computed growth ratesof cash flow from financing activities, cash flow from net income, and cash flow fromoperations.A regression analysis was performed in order to derive a beta and cost of capital forSchweitzer-Mauduit. The beta with the highest adjusted r squared was 1.49, which onlyexplains 34.04% of the overall risk of the firm. The beta of 1.49 is put into the CAPM equationto determine the cost of equity. Our results from the CAPM show the cost of equity to be183
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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
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New taxes on Net IncomeIn millions
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Amortized Goodwill
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obligations in the past five years,
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1.200 Quick Asset Ratio 1.000 0.8
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2004 2005 2006 2007 2008SWM 25.9881
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comparison. A small ratio shows inv
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6 Inventory Turnover 5 4 3 2 1 SWM
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2004 2005 2006 2007 2008SWM 79.5248
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Profitability Ratio AnalysisProfita
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Operating Expense RatioThe operatin
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15 Operating Pro`it Margin 10 5 0
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Net Profit Margin 2004 2005 2006 20
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Return on AssetsThe return on asset
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40 Return on Equity 20 0 -20 -40
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Internal Growth Rate 2004 2005 2006
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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 and 150: Estimating Cost of CapitalCost of E
Page 151 and 152: Size-Adjusted Cost of EquityThe CAP
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: Return on Equity RestatedGrowth Rat
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
Page 201 and 202: Total 59 1 2 0.939751 Coefficients
Page 203 and 204: Total 23 3 5 0.624714 Coefficients
Page 205 and 206: Residual Total 46 47 0.624852 0.848
Page 207 and 208: Residual Total 70 71 1 1 6 0.7615
Page 209 and 210: Residual Total 34 35 0.519917 0.775
Page 211 and 212: Price Earnings Growth(P.E.G.)Compan
Page 213 and 214: Discounted Free Cash Flowt 0 1 2 3
Page 215 and 216: Price(11/1/1988)Initial Costof Equi
Page 217 and 218: Figures in Millions (Except per S
Page 219 and 220: Growth Rate RestatedReturn on Equit
Page 221 and 222: Return on EquityGrowth RateKe -30%
Page 223 and 224: Schweitzer-‐Mauduit Restated
Page 225: Heakal, Reem. "What Are Economies o
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SWM - Mark Moore

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