SWM - Mark Moore

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12.32%. The upper and lower bounds are the 95% confidence intervals that show the cost ofequity to be between 5.44% and 19.28%, which is true. Once we calculated the cost of debt of3.57%, we were able to put both inputs into the weighted average cost of capital equation. TheWACC before tax was evaluated to be 6.9%, and 6.18% after taxes. The principal material forour valuation analysis were the forecasted financial statements, cost of capital figures (Ke), andthe weighted average cost of capital before tax (WACCbt).The equity valuation analysis was able to find an intrinsic value of Schweitzer-Mauduit.In order to determine its value, two different valuation analyses were conducted; the method ofcomparables and the intrinsic valuation analysis. The method of comparables has many flawsand cannot be weighted on too much. After observing the numbers and ratios of SWM and itscompetitors, we were only able to compute few comparable prices. The prices were comparedto the observed price of $50.95 with a 15% fairly valued position, meaning anything between$43.31 and $58.60 would consider SWM to be fairly valued. Any price above $58.60 wouldmean SWM is undervalued, and any price below $43.31 would mean SWM is overvalued.Overall, the method of comparables gave us a highly overvalued firm.The next valuation was the intrinsic analysis which is much more reliable than themethod of comparables. Five models were evaluated in order to determine value; thediscounted dividends model, the free cash flows model, the residual income model, the long runresidual income model, and the AEG model. All of these models are very effective, howeversome more than others. The discounted dividends and the discounted free cash flows accountfor dividends in their models, which is very unreliable. Forecasting dividends is difficult for anoutsider because it is up to management’s discretion. Nonetheless, both models proved SWM tobe overvalued. The last three intrinsic valuations are of the highest explanatory power, which iswhere most base their conclusions. After all of the computed stock prices were compared to theobserved price (with the same 15% fairly valued approach), it has shown SWM to beovervalued, as well. Taking all of this into account, especially the high explanatory models, weare confident in saying that SWM is a highly overvalued firm. This being said, we would advisethat any investor’s or stock holders sell any stock they currently hold in Schweitzer-Mauduit asin the stock is significantly over valued.184
AppendicesSales Manipulation DiagnosticsNet Sales/ Cash From Sales 2004 2005 2006 2007 2008 SWM 0.117452662 1.175087719 1.156983931 1.163790296 1.277916459 AOI 1.316316533 1.20289186 1.179072117 1.123635325 10.9615108 UVV 1.076345769 1.069412336 1.064461591 1.14953103 1.12070047 Industry Average 0.836704988 1.149130638 1.13350588 1.145652217 4.453375908 Net Cash/ Cash From Sales (change) 2004 2005 2006 2007 2008 SWM 1.454253612 1.205882353 3.945945946 1.244258873 -‐3.9924812 AOI 1.05630472 1.142862166 4.380126545 -‐0.02055062 UVV 3.882512849 1.054066669 1 0.968781863 0.82201615 Industry Average 2.66838323 1.105417914 2.029602704 2.197722427 -‐1.06367189 Net Sales/ Accounts Receivable 2004 2005 2006 2007 2008 SWM 6.729785056 6.711422846 7.37007874 7.105367793 8.826436782 AOI 4.161390238 5.928733965 6.584342325 9.088303232 11.11346044 UVV 14.09830285 19.05725804 16.51311377 7.687575161 9.284971896 Industry Average 8.329826049 10.56580495 10.15584495 7.960415395 9.741623041 Net Sales/ Accounts Receivable Change 2004 2005 2006 2007 2008 SWM 15.62 0.170731707 5.857142857 5.094017094 -‐0.0577802 AOI -‐35.32 18.76050024 19.9486166 1.295846912 -‐0.88197693 UVV 1.74 92.94348872 5.776029264 -‐31.0326614 -‐4.61848728 Industry Average -‐5.98666667 37.29157356 10.52726291 -‐8.2142658 -‐1.85274814 Net Sales/ Inventory 2004 2005 2006 2007 2008 185
Page 1 and 2:
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
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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 and 182: Return on Equity RestatedGrowth Rat
Page 183: Once the industry analysis had been
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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