Products

About

©2019 StudyMode.com

Discounted Cash Flow and Football Field Analysis

Topics: Discounted cash flow Pages: 18 (835 words) Published: November 3, 2015
FIN 667
Presented by:
Jue Wang, Yeqing Luo, Yixi Zhang, Zheng Ni

Executive Summary
• Company’s Business
– Company Overview
– SWOT Analysis

• Financial Statement
– Growth Rate
– DCF Valuation

• Industry Environment
– Historical Analysis
– Peer Group Analysis
2

Company Overview

• Chipotle is a worldwide chain of restaurant
• Opened 185 new restaurants in 2013, and
delivered revenue of $3.21 billion, an
increase of 17.7% for the year
• Its restaurant-level operating margins were
among the best in the industry at 26.6%
3

Company Overview

4

SWOT Analysis

• Strengths:
– Well-recognized brand in US with positive brand
image and customer loyalty
– All restaurants are owned by company

• Weaknesses:
– More expensive in Menu
– Chipotle’s major presence is only in US
5

SWOT Analysis
• Opportunities:
– Expand to new markets in US
– There is a growing trend of health consciousness
amongst people

• Threats:
– The competition within the fast food industry is
intensive.
– Consumers’ tastes may change and prices of raw
materials are volatile.
6

Calculation of WACC
• WACC = COE*Equity ratio+COD*(1-tax
rate)*Debt ratio
• Debt-free
• COE= Risk-free rate + Beta*(Expected return
– Risk -free rate) = 2.80% + 0.74*(6.06% 2.80%) = 5.21%
• WACC = COE = 5.21%
7

Growth Rate Analysis

8

Calculation of Growth Rate

• Net investment = Invested capital 1 - Invested
capital 0 = 1565.52-1276.26=289.26
• Investment rate = Net Investment/ NOPLAT
=289.26/326.56=88.57%
• Growth rate= Investment rate *
ROIC=88.57%*20.86%=18.48%
9

Risks in Maintain the High Growth Rate

Growth strategy : Open new restaurants
• Delays in opening restaurants
• The new restaurants opened may not be
profitable
• The expansion into international markets is
risky
10

DCF Analysis

11

Peer Group Analysis
Peer
Comparison
Ratios

Liquidity
Ratio

Financial
Leverage

Efficiency Ratio

Profitablity Ratio

Cash
Asset
current Asset/Equit Conversion
Gross
Turnove
ratio
y
Margin
Cycle
r

Chipotle
Mexican Grill

2.93

McDonald's
Corp.

1.45

Yum Brands
Inc.

0.87

Panera Bread
Company, Inc.

1.34

Operating
Margin

EBT
Margin

-4.39

1.77

27.11%

16.69%

16.54%

-2.38

0.81

39.24%

31.21%

29.38%

4.18

-52.03

1.53

27.73%

16.38%

12.22%

1.73

1.54

7.67

1.86

23.48%

13.28%

13.60%

Dunkin Brands
Group Inc.

1.19

9.28

-

78.09%

36.38%

29.29%

Starbucks Corp

1.27

57.14%

-2.19%

-1.54%

2.31

0.20
2.57

52.81

1.51

Company
Ticker
Market Cap
Current Price
Diluted EPS
Trailing P/E
Forward P/E

Relative Multiples Analysis
Chipotle
Mexican
Grill

Dunkin
McDonald's Yum Brands Panera Bread Brands
Starbucks Average
Group
Corp.
Inc.
Company, Inc.
Corp
Inc.

CMG

MCD

YUM

PNRA

DNKN

SBUX

15.06 B

99.01B

33.12 B

5.10 B

4.84 B

53.16 B

39.05

476.28

99.88

74.37

177.4

46.51

70.38

93.71

10.47

5.5

2.39

6.61

1.36

0.15

3.20

45.66

18.18

31.16

26.83

33.42

456.95

113.31

30.66

15.99

20.6

24.17

21.64

22.23

20.93

ROIC

20.86%

19.51%

25.89%

23.88%

8.57%

37.50%

23%

ROA

17.94%
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Discounted Cash Flow (Dcf) Analysis Essay

    ...MODELING THE DCF Modeling unlevered free cash flows Discounting to reflect stub year and mid-year adjustment Terminal value using growth in perpetuity approach Terminal value using exit multiple approach Calculating net debt Shares outstanding using the treasury stock method Modeling the weighted average cost of capital (WACC) Sensitivity analysis using data tables Modeling synergies ***************************** SAMPLE PAGES FROM TUTORIAL GUIDE ***************************** DCF in theory and in practice DCF in theory • The DCF valuation approach is based upon the theory that the value of a business is the sum of its expected future free cash flows, discounted at an appropriate rate. • Discounted cash flow (DCF) analysis is one of the most fundamental, commonly-used valuation methodologies. It is a valuation method developed and supported in academia and also widely used in applied business practices. DCF in practice • There is no consensus on implementation – controversies predominantly over the estimation of the cost of equity. • Extremely sensitive to changes in operating, exit and discount rate assumptions. • That said, there are general rules of thumb that guide implementation. Two-stage DCF model is prevalent form • • • • The prevalent form of the DCF model in practice is the two-stage DCF model. Stage 1 is an explicit...

    Read More
    1400 Words 7 Pages
  • Question: Discounted Cash Flow Essay

    ...Exam 2 Part 2 Answer any EIGHT of the ten questions. Each question is worth 5 points. Return your answers to me by 11:59 PM Sunday 11 November 2012 1. A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms. How is this possible? Does this violate our basic principle of stock valuation? Explain.  Our basic principle of stock valuation is that the value of a share of stock is simply equal to the present value of all of the expected dividends on the stock. According to the dividend growth model, an asset that has no expected cash flows has a value of zero, so if investors are willing to purchase shares of stock in firms that pay no dividends, they evidently expect that the firms will begin paying dividends at some point in the future. 2. Explain why some bond investors are subject to liquidity risk, default risk, and/or taxability risk. How does each of these risks affect the yield of a bond?  Liquidity problems exist in thinly traded bonds making some bonds difficult to sell at their actual value. Default risk is the likelihood the corporation will default on its bond obligations. Taxability risk reflects the fact that some bonds are taxed disadvantageously compared to others. If any of these risks exist, investors will require compensation by demanding a high yield. 3. The discussion of asset pricing in the text suggests that an investor will be indifferent between two bonds...

    Read More
    741 Words 3 Pages
  • Essay about Discounted Cash Flow

    ...Literature Review of DCF An important consideration when using the DCF approach to valuation is its validity and usefulness in valuing companies and their stock prices. Various studies have established that a strong correlation between estimated future cash flows and the value of a firm exists (Copeland et al, 1994 ; Brealey and Myers , 2000; Jones, 1998 ). In their study of 51 highly leveraged transactions (HLTs) , Kaplan and Ruback (1995) found that the valuations using the DCF methods are within 10%, on average, of the market value of the transactions, providing a strong relation between the market value and discounted cash flow forecasts. In addition, they found that the DCF methods perform at least as well as the comparable valuation methods. Comparing valuations using the Adjusted Present Value (APV) approach to those using comparative valuation methods, 47.1% to 62.2% of the APV valuations had valuation errors within 15%, compared to 37.3% to 57.9% using comparable valuation methods. Furthermore, after calculating an implied discount rate that forces their DCF forecasts to the market values, they obtained an implied market equity risk premium that is comparable to the historic arithmetic average market equity risk premium, suggesting the accuracy of the DCF method. Other studies have confirmed their findings, as per (Penman and Souginannis, 1998; Francis, Olsson and Oswald, 2000; Berkman,...

    Read More
    448 Words 2 Pages
  • Discounted Cash Flow Essay

    ...Corporate Finance 7th Edition Richard A. Brealey and Stewart C. Myers George Reeby proposes to sell 90,000 shares, or about 22%, of his company. How much are those shares worth? We have to value the company using George's forecasts. The forecasts presented in Tables 4.10 and 4.11 do not show free cash flow and financing requirements. These are calculated in Table 1. Note that free cash flow for 2005 is -$2.3 million. But dividends are $2.0, so the company will need 2.3 + 2.0 = $4.3 million in outside equity financing. Table 2 shows that the book value of equity is forecasted to grow from $40.71 million in 2004 to $63.31 million at the end of 2010. Table 3 works out earnings, dividends and free cash flow for 2011. By that time Reeby Sports should be earning 12% on equity, paying out 40% of earnings, and growing steadily at 7.2% per year. Note that gross investment equals depreciation plus 60% of earnings. s It's easiest to value the company by assuming that its current shareholders contribute all of the $4.3 million required in 2002 and receive all of the free cash flow afterwards. Note from Table 1 that the present value of free cash flow from 2004 to 2010 is $8 million. Of course there are several ways to calculate PVH, the horizon value in 2010. The...

    Read More
    848 Words 5 Pages
  • Cash Flow Analysis Essay

    ...to grow, which makes an acquisition easy to finance. 3) Interco is also a cash generative target for a potential acquirer as it generates approximately $0.10 of operating cash flow for every dollar of sales. 4) The company is also structured in a way that it could be broken up and sold into its constituent parts, which could prove to be worth more than the whole. 2. As a member of the Board of Interco, neither the Premiums Paid Analysis nor the Comparable Transaction Analysis is very convincing.  Premiums Paid Analysis – At first glance, the premiums paid analysis indicates that the Rales Proposal undervalues the stock relative to other recent transactions. However, this measure has limited reliability in that it is not directly related to the company’s financial outlook. Additionally, this analysis does not indicate which industries are being used as comps, so it is impossible to tell how relevant this data really is.  Comparable Transaction Analysis – Since Interco is a conglomerate, no one industry segment will provide an accurate measure of the effectiveness of the Rales Proposal in the aggregate. Also none of the comps are even close in size to the aggregate valuation range of the Rales Proposal. Therefore, thee comps may not be relevant as smaller companies may have different growth and profitability dynamics. 3. See...

    Read More
    1184 Words 3 Pages
  • Essay about Discounted Cash Flow

    ...discounted cash flow (DCF In finance, discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give their present values (PVs) — the sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value or price of the cash flows in question. Using DCF analysis to compute the NPV takes as input cash flows and a discount rate and gives as output a price; the opposite process — taking cash flows and a price and inferring a discount rate, is called the yield. Discounted cash flow analysis is widely used in investment finance, real estate development, and corporate financial management. Discount rate Main article: Discounting The most widely used method of discounting is exponential discounting, which values future cash flows as "how much money would have to be invested currently, at a given rate of return, to yield the cash flow in future." Other methods of discounting, such as hyperbolic discounting, are studied in academia and...

    Read More
    4436 Words 13 Pages
  • Discounted Cash Flow Analysis

    ...An empirical study of the discounted cash flow model Martin Edsinger1, Christian Stenberg2 June 2008 Master’s thesis in Accounting and Financial Management Stockholm School of Economics Abstract The purpose of this thesis is to compare the practical use of the DCF model with the theoretical recommendations. The empirical study is based on eight different DCF models performed by American, European and Nordic investment banks on the Swedish retail company Hennes & Mauritz (H&M). These models are currently being used internally by the corresponding equity research departments to determine the fair value of the H&M stock. The aspects that are studied are regarded as the basic theoretical requirements of the DCF model. The discrepancies between theory and practice are concluded to be significant and the overall quality of the studied DCF models is determined to be poor. The explanation for the differences between theoretical practice and empirical findings is mainly attributed to the use of the DCF model as a tool to merely motivate an investment recommendation and not derive a correct theoretical value. Tutor: Professor Peter Jennergren3 Discussants: Gustav Ohlsson, Fredrik Toll and Carl Wessberg Presentation: June 5, 2008, 15:15 am Venue: KAW, Stockholm School of Economics Key words: corporate valuation, discounted cash flow model, free cash flow, valuation...

    Read More
    12797 Words 39 Pages
  • Discounted Cash Flow Techniques Essay

    ...ANALYSIS FOR FINANCIAL MANAGEMENT 10TH Edition Robert C. Higgins Additional Problems Chapter 7 – Discounted Cash Flow Techniques page 247 A brief tutorial on Excel financial functions (problems to follow) You may find the following Excel, built-in financial functions helpful when analyzing the problems below. (To access these functions, select Insert, Functions, and choose Financial.) =PV(rate, nper, pmt, fv, type) returns the present value of a series of cash flows. =FV(rate, nper, pmt, pv, type) returns the future value of a series of cash flows. =PMT(rate, nper, pv, fv, type) calculates the periodic payment for a loan based on constant payments and a constant interest rate. =NPER(rate, pmt, pv, fv, type) returns the number of periods for an investment based on periodic, constant payments and a constant interest rate. =NPV(rate, range) returns the net present value of an investment based on a discount rate and a series of future payments (negative values) and income (positive values). (Warning: By convention, NPV calculates the net present value one period before the first cash flow.) =IRR(range, guess) returns the internal rate of return for a series of cash flows. In these functions, rate = the discount, or interest rate....

    Read More
    2300 Words 10 Pages

Popular Essays

Become a StudyMode Member

Sign Up - It's Free