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1、CHAPTER 14INDUSTRY ANALYSISAnswers to Questions1. The results of empirical studies concluded that there are substantial differences in absolute or relative performance among industries during any given time period. In addition, industry performance differences are found in alternative time periods w
2、here the time periods may vary in length. Therefore, the investor must examine alternative industries after he has forecasted market movements because of the wide dispersion of industry performance around the expected market performance.2. Studies show that relative industry performance is inconsist
3、ent over time. When industries are ranked over successive time periods, there is little correlation in the rankings. This result holds for different types of markets and for alternative length time periods. These findings imply that simple extrapolation of past performance is not useful by itself. T
4、herefore, the analyst must put additional effort into his industry analysis by projecting industry performance based upon future expectations of industry conditions. This obviously makes industry analysis more demanding.3. A greater emphasis must be placed upon industry analysis when the performance
5、s of the individual firms cluster about the industry performance. In contrast, once the industry performance is estimated, the need for individual firm analysis is reduced since these results imply that all the firms will behave similar to the industry.4. Disagree. Although studies have shown a sign
6、ificant dispersion of individual firm performance within a given industry, they also found that the industry component could partially explain individual firm performance. Although the strength of the industry component varies among industries, industry analysis is an important step before proceedin
7、g to the company analysis. The important implication is that individual company analysis would be relatively more important for industries where individual company returns are widely dispersed. The point is, the dispersion among companies within industries indicates a need for company analysis after
8、 industry analysis.5. For given time periods, there were significant differences in risk among alternative industries. An analysis of Beta coefficients for the 30 Barrons industry groups indicated a wide range of systematic risk. The substantial dispersion in risk for alternative industries implies
9、that the analyst must examine the risk levels for alternative industries.6. While there is substantial dispersion in industry risk during a given time period, studies indicate reasonably stable beta coefficients over time. This implies that past industry risk analysis may be useful in estimating fut
10、ure risk.7. The fourth stage of the industrial life cycle is stabilization and market maturity. During this stage, sales grow in line with the economy. If sales per share for an industry in this stage of the life cycle were predicted to increase by 20 percent, this would imply a growth rate of the a
11、ggregate economy of 20 percent. A sales growth rate of 20 percent is high for an industry in the fourth stage of the industrial life cycle.8. As an investor, you would like to discover a firm just entering the rapid accelerating growth stage. During this stage, a firm will experience high sales grow
12、th, high profit margins, and little competition. 9. An industry that experienced the kind of explosive growth characteristics of stage two (rapid accelerating growth) was the internet-related industry in the late 1990s.10. Input-output analysis is one of three popular methods for forecasting industr
13、y sales. For autos, industries supplying steel, glass, tires and upholstery fabrics should be scrutinized as well as the spending capabilities/habits of consumers. For computers, the suppliers of critical components would have to be studied along with the spending capabilities/habits of potential us
14、ers.11. A substitute product for steel would limit the prices firms in that industry could charge. The degree of limitation would depend on how closely the substitute product was in price and function to steel.12. Both the present value of cash flow approaches and the relative valuation ratios appro
15、ach require two factors be estimated: (1) required rate of return on the stock, because this rate becomes the discount rate or is a major component of the discount rate, and (2) growth rate of the variable used in the valuation techniques, such as, dividends, earnings, cash flows or sales.13. Earnin
16、gs multiplier (P/E) is determined by:(1) the expected dividend payout ratio,(2) the estimated required rate of return on the stock (k), and(3) the expected growth rate of dividends for the stock (g).Within the retail food industry, one would look at a companys fundamental risk (business, financial,
17、liquidity, exchange and country risks). Differences in fundamental risk levels will determine a companys performance within the industry. One could also look at the competitive environment of an industry rivalry among the existing competitors, threat of new entrants, threat of substitute products, b
18、argaining power of buyers, and bargaining power of suppliers.14. The two-stage FCFE model would apply to the valuation of stock for growth companies because the high growth of earnings for the growth company is inconsistent with the assumptions of the infinite period constant growth DDM model. A com
19、pany cannot permanently maintain a growth rate higher than its required rate of return, because competition will eventually enter this apparently lucrative business, which will reduce the firms profit margins and therefore its ROE and growth rate. Therefore, after a few years of exceptional growth (
20、a period of temporary supernormal growth) a firms growth rate is expected to decline. Eventually its growth rate is expected to stabilize at a constant level consistent with the assumptions of the infinite period DDM. 15. The reason for the difference in the P/CF ratios can be explained by differenc
21、es in the growth rate of CF per share between the market and industry, and the risk (volatility) of the CF series over time. Therefore, an increase in the growth rate of the industry CF compared to the growth of the market CF, as well as the industry CF series becoming more consistent in its growth,
22、 would cause an increase in the industry-market ratio.16. CFA Examination II (1999)Identify Current Stage in Product Life Cycle (circle one)16(a). SUV Modeland Justify Your ChoiceDeclining RavenThe number of Raven SUV units sold has declined since its peak in 1997 and the decline is expected to acce
23、lerate in 1999 and 2000.Mature HawkThe rate of increase in the number of Hawk SUV units sold has slowed and the number sold is expected to increase only modestly in 1999 and 2000.ExpandingEagleThe number of Eagle SLTV units sold has increased rapidly since its introduction in 1997 and is expected to
24、 continue growing rapidly in 1999 and 2000.16(b).The statement that Nelson Motors is enjoying increasing SUV profitability is true. SUV Division profits have increased from $45 million in 1990 to $1,311 million in 1998, with additional substantial increases forecast for 1999 and 2000. The SLTV divis
25、ion has grown from approximately 4% of Nelson Motors profits in 1990 to an estimated 52% of profits in 2000. The Eagle is primarily responsible for this profit growth because of its high unit sales growth and greater profit per vehicle compared to the Raven and the Hawk.The second part of the statem
26、ent, that Nelson Motors enjoys declining earnings risk going forward, is not true. Nelson Motors is relying heavily on the Eagle to take the place of the Raven, which is in the declining phase of its life cycle, and the Hawk, which is in the maturity phase of its life cycle. Note that Nelson Motors
27、has no SUV models other than the Eagle in the early phase of their life cycle. The increasing dependence of Nelson on the profitability of the SUV division increases the exposure of the company to developments that would affect that product line.In summary, while Nelson Motors may enjoy increased pr
28、ofitability due to the success of the Eagle, the risk to earnings has actually increased because the company is more dependent on one model in the future. In the existing SUV product portfolio, the Raven and Hawk are aging, and their contribution to Nelsons profits is dropping dramatically.17. CFA E
29、xamination II (1999) Valid / Industry CharacteristicsStatement Not Valid (cite two by number for each (circle one) statement)I recommend that we invest in toyValid: 1, 2, 4, 5, 6, 15companies with a substantial percentage of Validrevenues derived from non-U. S. sales. Not Valid: noneCompanies select
30、ed for the portfolio Valid:13should derive a large portion of revenues Not Validfrom the largest discount toy retailer. Not Valid:13, 14, 15I am particularly interested in a start-up Valid: 12company that has an exciting new toy Not Validcoming out based on a very popular Not Valid: 7, 8, 10, 11, 16
31、television show.Although MasterToy has the dominant Valid:nonemarket share, smaller companies will have Not Validbetter opportunities for growth. Not Valid: 7, 8, 9, 10, 11, 16CHAPTER 14Answers to Problems1. Student Exercise2. Student Exercise 3. Student Exercise 4. Student Exercise5.6.7. 待添加的隐藏文字内容
32、2Student Exercise8. Student Exercise9. Student Exercise10. CFA Examination II (1995)8(a).Relevant data items from Table 1 that support the conclusion that the retail auto parts industry as a whole is in the stabilization phase of the industry life cycle are:1. The population of 18-29 year olds, a ma
33、jor customer base for the industry, is gradually declining.2. The number of households with income less than $35,000, another important customer base, is not expanding.3. The number of cars 5-15 years old, an important end market, has recorded low annual growth (or actual declines in some years), so
34、 the number of units that potentially need parts is not growing.4. Automotive aftermarket industry retail sales have been growing slowly for several years.5. Consumer expenditures on automotive parts and accessories have grown slowly for several years.6. Average operating margins of all retail autop
35、arts companies have steadily declined.8(b). Relevant items of data from Table 1 that support the conclusion that Wigwam Autoparts Heaven, Inc. (WAHI) and its major competitors are in the growth stage of their life cycle are:1. Sales growth of retail autoparts companies with 100 or more stores have b
36、een growing rapidly and at an increasing rate.2. Market share of retail autoparts stores with 100 or more stores has been increasing but is still only 19 percent, leaving room for much more growth.3. Average operating margins for retail autoparts companies with 100 or more stores are high and rising
37、.Because of industry fragmentation (i.e., most of the market share is distributed among many companies with only a few stores), the retail autoparts industry apparently is undergoing marketing innovation and consolidation. The industry is moving toward the “category killer” format, in which a few ma
38、jor companies control large market shares through the proliferation of outlets. The evidence suggests that a new “industry within an industry” is emerging in the form of the “category killer” large chainstore company. This industry subgroup is in its growth stage (i.e. rapid growth with high operati
39、ng profit margins) despite the fact that the industry is in the stabilization stage of its life cycle.11. The industry (I) would have a lower P/E than the market (M) because:(a) ROE for the industry is lower than the market ROE;(b) Growth for the industry is lower than for the market; and(c) Beta fo
40、r the industry is higher (more risk) than for the market IndustryMarket g = RR X ROEg = .60 x .12 = .072g = .55 x .16 = .088 Assuming RFR = 6% and 16%, k = RFR + b(Rm RFR)k = .06 + 1.05(.16 - .06)k = .06 + 1.0(.16 - .06) = .165 = .16 D/EP/E = P/E = .40/(.165 - .072)P/E = .45/(.16 - .088) k g = .40/.093 = 4.3x = .45/.072 = 6.25x
