The post Value Stocks with DCF Model in Excel appeared first on MarketXLS: Financial Tools for Investors.
]]>There are mainly three types of DCF models, namely, Dividend Discount Model (DDM), Free Cash Flow to Equity (FCFE), and Free Cash Flow to Firm (FCFF). In this article, we will build the DFC Model in Excel using Free Cash Flows to Firm (FCFF). The FCFF is the cash flow to all holders of capital in the firm, i.e., the equity holders and the bond holders.
Our approach will be to:
Since it’s very difficult to forecast cash flows for too far in the future, we focus on forecasting annual cash flows for the near future (say 5 years). Beyond that we focus on forecasting the long-term growth rate. This will allow us to calculate a terminal value for the firm after, say, 5 years.
Since we need a base, we start with initial cash flows which we can derive from the available financial statements.
The free cash flow can be calculated using the following formula:
Free Cash Flow = EBIT(1-t) + Depreciation & Amortization – Changes WC – Capital Expenditure
We then need to build the forecast of the cash flows. To do so, we forecast the near and long-term growth rates.
To discount these cash flows, we use the weighted average cost of capital for the firm. This is because we are using the cash flows for the overall firm and not just equity. The WACC calculation requires many inputs and assumptions:
While some of these are assumption, we can find some of these information from reliable sources. There are free sources of information as well as premium sources (such as MarketXLS) which make it easy to access and use the information in your excel models.
Once we have all this information, we calculate the WACC using the following formula:
WACC = w_{e}*k_{e} +w_{d}*k_{d}(1-t)
Where:
In addition to the cash flows for the short-term projection period (say 5 years), we need to estimate a terminal value for the firm which will reflect the value of the firm for all the years beyond our short term period of 5 years.
The terminal value can be calculated as the present value of a growing perpetuity using a long-term stable growth rate (g).
V_{t} = CF_{t} (1+g)/(k-g)
Where:
Now that we have all the required data, we discount the forecasted cash flows and the terminal value to the present using WACC as the discount rate.
Especially relevant here is that the resulting value is the intrinsic value of the entire firm.
Since the value we got is the value of the entire firm, we first calculate the value of equity by subtracting the debt value from the firm value we calculated above:
Equity Value = Firm Value – Debt value
Then we calculate the intrinsic value per share by dividing the equity value by the total outstanding shares.
Intrinsic Value per Share = Equity Value / Outstanding Shares
We can compare the intrinsic value with the stock’s market value to know whether the stock is undervalued or overvalued.
We have setup a simple to use DCF model in excel which you can download and use it for valuing any stock. You can also modify it as per your needs.
Here are a few important points about how to use the spreadsheet:
Download the DCF Model in Excel Template
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]]>The post Calculate Piotroski F-score in Excel using MarketXLS appeared first on MarketXLS: Financial Tools for Investors.
]]>Joseph Piotroski is a Chicago Accounting professor who devised the F-score strategy. F-score is a scoring system to identify companies that show financial strength and are undervalued.
We need nine parameters to calculate the F-score. The parameters are divided into three broad categories.
Profitability measures the ability of a firm to generate positive cash flows or profits. We have 4 parameters related to profitability:
This category measures changes in leverage, liquidity and sources of funding. The parameters here provide a sign of the ability of the firm to meet its debt service obligations.
Furthermore, we want the company to have high liquidity.
This category measures changes in a company’s’ productivity. It also measures its ability to use its assets.
We award scores based on all these 9 parameters and then total score represents the F-score. The higher the score, the better is the investment.
You should use the Piotroski F-score as a supplement along with other screening strategies.
As we have seen, it’s an easy to calculate yet high impact measure. Also, it makes use of fundamentals information available in financial statements. Since MarketXLS provides all the required fundamentals information for stocks, we can calculate Piotroski F-score in Excel using data fetched using MarketXLS. Let’s finally take a look at how we can do it.
Let’s say you want to calculate the F-score for the Facebook stock (Stock Symbol FB) and some other stocks. We will make use of the Historical fundamental functions available in MarketXLS. We can access this category of function through Excel’s in-built function menu as shown below:
All functions in this category start from a prefix “hf_”
where hf stands for “Historical Fundamentals”. We can use these functions to get historical values of fundamentals from a company’s financial statements. Also, all the values returned from these functions are from SEC filings.
You can just start typing =hf_
and Excel will also give a list of all functions available like shown below:
Since all these functions are consistent in format that makes it easy to use them.
Revenue of FB Year 2016 : =hf_Net_Income("FB","2016")
TTM Revenue of FB Year 2016 Q3 : =hf_revenue("FB","2016","3","TTM")
Following are the arguments for these functions:
All Quarterly values refer to Calendar Quarters and not the fiscal quarters. So, when you ask to get data for Q1 it means data for January to March End. Now this period could actually be Quarter 3 in some companies whose Fiscal year is from April to March.
These formulas are useful when you want to analyze the fundamental strength of a company. Since these functions are in Excel you can use them in many ways. Such as, for comparing many companies for many metrics over time. You can also look at trends of revenue, etc.
Getting Piotroski F-score in Excel Using MarketXLS Functions
We now know how we can get historical fundamentals data in excel using MarketXLS. We can therefore calculate the 9 parameters of Piotroski F-score in Excel using these functions.
The first parameter is the Net Income. We can get net income using the following formula:
=hf_Net_Income(“FB”,”2016”)
With this formula, we will get the net income for Facebook for the year 2016. Once we have the values, we can write an if condition to check if this value is positive and assign the score.
We can calculate all 9 parameters using the formulas. Then compare values and assign scores using if conditions.
S. No. | Parameter | Formula |
1 | Net Income | =hf_Net_Income(“FB”,”2016”) |
2 | Operating Cash Flow | =hf_Net_Cash_Flow_from_Operations(“FB”,”2016) |
3 | Return on Assets | =hf_Return_on_Average_Assets(“FB”,”2016,”4″,”TTM”) |
4 | Earnings Quality | =hf_Net_Cash_Flow_from_Operations(“FB”,”2016”) – hf_Net_Income(“FB”,”2016”) |
5 | Long-term Debt-to-Assets Ratio | =hf_Total_Debt($C$4,D8)/hf_Total_Assets(“FB”,”2016”) |
6 | Current Ratio | =hf_Current_Ratio(“FB”,”2016”) |
7 | Average Shares Outstanding | =hf_Weighted_Average_Shares(“FB”,”2016”) |
8 | Gross Margin | =hf_Gross_Margin(“FB”,”2016”,4,”TTM”) |
9 | Asset Turnover | =hf_Asset_Turnover(“FB”,”2016”,4,”TTM”) |
In Summary, we can now add the individual scores and get the total score.
You can download the excel template to calculate the “Piotroski F-score in Excel”:
Download Piotroski F-score in Excel Calculator
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]]>The post Dupont Analysis in Excel with MarketXLS Template appeared first on MarketXLS: Financial Tools for Investors.
]]>Dupont analysis is a way to look at two ratios, ROA and ROE. Mainly, we decompose these ratios and look at different parts of these, so maybe we can get a better understanding of what is going on in the firm. Scientists at Dupont Corporation first used Dupont analysis in the 1920’s. This article explains the concept and provides the guidance on how to do Dupont analysis in Excel with MarketXLS
Essentially, DuPont analysis an accounting equation, so before we go into the detail let us look at what ROA and ROE are.
So, let’s say we have revenues of USD 100 and Expenses of USD 90 in our income statement. Our Net Income in the Income statement is USD 10. On the Balance Sheet, let’s say we have Assets of USD 100 and liabilities of USD 50.
ROA is the return on the Assets. So, in our example its 10/100 (10%). In essence, it is an indicator of how a firm can utilize the Assets it has. ROE, on the other hand, is the return on the equity. Think about equity as if you pay back all your liabilities how much Assets you will be left. So, in our example, Equity will be Assets – Liabilities = 100-50 = USD 50. So, ROE is essentially a return on this equity so 10/50 (20%).
So, let’s say there are two companies with the same net income; one company could be generating this revenue by selling more and other company could be making same net income by selling less with higher margins. So, the fundamental idea is that just by looking at ROA we can not make out if this return is more due to better margins or its due to more sales.
We can demonstrate this by multiplying and divide the ROA equation by Revenue. The first element is the Profit Margin and the second one is asset turnover ratio.
If a company has zero liabilities, that means equity finances all the assets of the enterprise. If that is the case, then the ROE will be equal to ROA. However, in a typical situation, ROE will be higher than the ROA because equity is a part of the assets.
For ROE, if you multiply the previous equation by a factor called Equity Multiplier (which is a way to show how much of the total assets is from equity) you get the ROE. Now, if all the assets come from the equity multiplier will be 1, so ROE and ROA will be the same.
So, Dupont analysis just another way of looking at the ROE and ROA and decompose its parts to find out which part in the ratio is making the ratio look better or worse.
Different industries may have different benchmark margins and asset turnover ratios. So, when comparing companies, we will see what if they are reflective of the industry or not.
I have created the template to do Dupont analysis in Excel, you can use it with MarketXLS
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]]>The post Stock Screener: In-depth Research of a Stock appeared first on MarketXLS: Financial Tools for Investors.
]]>Once you have a stock in mind, you can use the screener to look up any fundamental indicator for the stock, compare it with any other indicator for the same stock, and view its 10-year trend. All of this happens in one screen with just a few clicks.
In the following screen, I’ve selected Pfizer, a leading pharmaceutical company in the USA.
On the screen, you are seeing the 10-year trend for Earnings Before Tax for Pfizer. The screen is very intuitive, make selections and compare metrics.
Let’s first look at how the screen is organized and how to get the maximum value out of it. The screen is divided into three vertical panels
The left panel is for stock selection. If you already have a name of stock with you, just enter that in the Company Name search box and hit enter. You will be presented with a shortlist of stocks matching the name. Select the stock and hit enter. You will immediately observe that the chart in the right panel will change and now showing data only for the selected stock. In the above case,Pfizer.
After you’ve selected the stock, you can select the indicators that you want to view from the middle panel.
Selecting a group will populate the relevant metrics in the Metrics box below. The four groups are:
You are free to select a metric directly by searching in the Metric selection box. Alternatively, you can first filter them by a particular financial group, such as balance sheet, and then select the metrics related to that. Based on your company and metric selection, the metrics are plotted on the chart in the right side panel.
In the following screen, I’ve selected two metrics related to Pfizer,i.e., Earnings per Share and Free Cash Flow per Share, which provide good indication of the earnings capacity and free cash generated.
The screener follows the associative model, that is, all data points are associated with each other. So, while researching and filtering, you don’t have to follow a set path, which you generally see in traditional screeners. To give you an example, in the above example, I first selected the Pfizer stock, and then I selected two metrics from the Metrics selection filter. Now let’s say I wanted to see the same two metrics for another stock in mind. In a standard screener, you would have to clear all your filters and start from the beginning to arrive at the same results. However, in MarketXLS, since the data is associated, you don’t have to do that. All you need to do is leave the metric selection as it is. And just select a different company from the company selection box.
This approach makes the screener really powerful and reduces the time required to conduct your research. In the following screen, I started with where I was with my Pfizer stock, and just changed the company to Merck & Co, and now I see the same selected metrics and charts for Merck.
The screener is designed with flexibility in mind so you can use it to conduct research as your like. However, with this flexibility, you will need to be careful about a few things to ensure that you are looking at the data accurately. Here are a few points to keep in mind:
With the freedom that MarketXLS allows, this might just be the best research tool in your hand. You can access the screen from right within your excel sheet from the MarketXLS menu bar. So, try your hands at it and tell us what you come up with.
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]]>The post Stock Screener: Comparing Stocks for Fundamentals History appeared first on MarketXLS: Financial Tools for Investors.
]]>In this article, we will focus on our stock screener ‘Comparing Stocks’ that allows you to compare metrics for multiple stocks. Let’s say you are looking at Earnings Before Interest and Tax (EBIT) for Pfizer, and you want to compare it with the EBIT for Merck & Co. This screener allows you to do exactly that. As you can see, in the following screen, I have selected the two stocks from the Company selection box, and EBIT in the Metric selection. The chart shows me the 10-year comparison of EBIT for the two selected stocks.
While it is important that you select only one metric at a time for meaningful results, you are free to select as many companies as you want and compare their metrics on the chart.
Just like the Stock Screener: In-depth Research of a Stock, this screener also follows the associative principles which makes it easy to select/deselect anything you like at any time in your stock research. For example, let’s say that you want to add one more stock to your comparison, i.e., Johnson & Johnson, first relook at their EBIT and then compare their free cash flow per share.
In the following screen, I’ve added Johnson & Johnson to the list, and can compare their EBIT.
Now that I have compared their EBIT, I can go ahead and compare their free cash flow. To do so, I will first deselect EBIT, change the Financial Statement group to Metrics & Ratios, and then select the metric Free Cash Flow per Share. The chart will immediately reflect the new metric.
These multiple stock screens complement each other and allow you to research stocks and look at the data from multiple dimensions with the goal of providing a complete picture.
The post Stock Screener: Comparing Stocks for Fundamentals History appeared first on MarketXLS: Financial Tools for Investors.
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