SchweserNotes - Book 2

LOS 38.a: demonstrate the development of a sales-based pro forma company model.

A sales-based pro forma company model consists of projected future financial statements, based on an analyst's estimate of a company's future revenues. We summarize the steps in creating such a model here. In our Equity Investments reading on Company Analysis: Forecasting, we will describe some of these steps in more detail.
売上ベ​​ースのプロフォーマ企業モデルは、企業の将来の収益に関するアナリストの推定に基づいて、予測される将来の財務諸表で構成されます。このようなモデルを作成する手順をここにまとめます。企業分析: 予測に関する株式投資の読書では、これらのステップのいくつかをさらに詳しく説明します。

LOS 38.b: Explain how behavioral factors affect analyst forecasts and recommend remedial actions for analyst biases.

Like everyone, those in the financial industry are prone to behavioral biases. For analysts, these biases can result in inaccurate forecasts.

1. Overconfidence bias. This is having too much faith in one's own work. Analysts may underestimate their forecasting errors; hence, they have a narrower confidence interval for their forecasts than warranted. Research has shown that analysts who "go against the grain" (i.e., forecasting what others are not) are more likely to suffer from overconfidence bias. This bias may be mitigated by sharing forecasts and soliciting critique. Analysts should evaluate their past forecasts and learn from their own forecasting errors, which should lead to a widening of their confidence intervals. Using scenario analysis to produce a range of forecasts may help to identify any shortcomings.
   自信過剰バイアス。これは自分の仕事を過信していることです。アナリストは予測誤差を過小評価する可能性があります。したがって、予測の信頼区間が保証されているよりも狭くなります。研究によると、「方向性に反する」（つまり、他の人が予想していないことを予測する）アナリストは、自信過剰バイアスに悩まされる可能性が高いことがわかっています。この偏見は、予測を共有し、批判を求めることで軽減される可能性があります。アナリストは過去の予測を評価し、自身の予測誤差から学ぶ必要があり、それが信頼区間の拡大につながるはずです。シナリオ分析を使用してさまざまな予測を作成すると、欠点を特定するのに役立つ場合があります。
2. Illusion of control bias. This is related to overconfidence, but refers specifically to overestimating what an analyst can control and trying to control things an analyst cannot control. This bias is manifested in two primary ways: seeking "expert" opinions to justify a forecast, and making a model more complex (e.g., by including more independent variables). Overfitted models perform poorly out of sample and can also conceal assumptions that need to be updated based on new information. Illusion of control can be mitigated by focusing only on variables with known explanatory power, and by seeking outside opinions only from those who have a relevant perspective.
   コントロールバイアスの幻想。これは自信過剰に関連していますが、特にアナリストがコントロールできるものを過大評価し、アナリストがコントロールできないものをコントロールしようとすることを指します。このバイアスは、予測を正当化するために「専門家」の意見を求めることと、モデルをより複雑にすること (たとえば、より多くの独立変数を含めることによって) という 2 つの主な方法で現れます。過適合モデルはサンプルからのパフォーマンスが低く、新しい情報に基づいて更新する必要がある仮定が隠蔽される可能性もあります。コントロールの幻想は、既知の説明力を持つ変数のみに焦点を当て、関連する視点を持つ人からのみ外部の意見を求めることによって軽減できます。
3. Conservatism bias. This is also called anchoring, where the analyst makes only small adjustments to their prior forecasts when new information becomes available. Usually, conservatism results in reluctance to incorporate new negative information; however, it could also lead to lags in incorporating positive news. Mitigating this bias requires periodic evaluation of forecasting errors, and using simpler models that are easier to adjust for new or changed assumptions.
   保守主義の偏見。これはアンカリングとも呼ばれ、アナリストは新しい情報が入手可能になったときに以前の予測をわずかに調整するだけです。通常、保守主義は新しい否定的な情報を取り入れることに消極的になります。ただし、ポジティブなニュースを取り入れるのに遅れが生じる可能性もあります。このバイアスを軽減するには、予測誤差を定期的に評価し、新しい仮定や変更された仮定に合わせて調整しやすい単純なモデルを使用する必要があります。
4. Representativeness bias. This bias occurs due to a tendency to rely on known classifications. Sometimes, new information may only be superficially similar to a known classification but may be better viewed from a fresh perspective. One common form of representativeness bias is base-rate neglect, where an observation's membership (its base rate, or rate of incidence in a larger population) is neglected in favor of situation or member-specific information. Fixating on a firm's company-specific factors is known as the inside view, while viewing the company as a member of a particular industry (focusing on the base rate) is sometimes known as the outside view. Analysts should consider both inside and outside views to generate forecasts.
   代表性バイアス。この偏りは、既知の分類に依存する傾向によって発生します。場合によっては、新しい情報は既知の分類と表面的に似ているだけであっても、新しい視点から見たほうがよい場合があります。代表性バイアスの一般的な形式の 1 つは、基本率無視です。これは、状況またはメンバー固有の情報を優先して、観測値のメンバーシップ (その基本率、またはより大きな母集団における発生率) が無視されることです。企業固有の要素にこだわることは内部ビューとして知られ、企業を特定の業界のメンバーとして見ること（基本料金に焦点を当てる）は外部ビューとして知られることもあります。アナリストは、予測を作成するために内部と外部の両方の意見を考慮する必要があります。
5. Confirmation bias. Confirmation bias causes an analyst to seek out (or pay attention to) data that affirms their earlier convictions, and to disregard or underestimate information that calls those opinions into question. For example, an analyst who has a positive view of a particular company may choose to discuss the firm with colleagues who share the same point of view. Two ways to reduce confirmation bias are to keep abreast of research from analysts who have an opposite view, and to seek out the points of view of colleagues who have no emotional investment in the opinion. Analysts should also be aware of their own confirmation bias when they evaluate a company management's representations. Managements tend to portray their companies in a positive way, and analysts who have (or want to have) positive outlooks on companies must be careful not to simply take management's comments at face value.
   確証バイアス。確証バイアスにより、分析者は以前の確信を裏付けるデータを探し求め（または注意を払い）、その意見に疑問を投げかける情報を無視または過小評価するようになります。たとえば、特定の企業に対して肯定的な見方をしているアナリストは、同じ視点を共有する同僚とその企業について議論することを選択するかもしれません。確証バイアスを軽減する 2 つの方法は、反対の見解を持つアナリストの調査結果を常に把握し続けることと、その意見に感情的な投資をしない同僚の視点を求めることです。アナリストは、企業経営者の表現を評価する際に、自身の確証バイアスにも注意する必要があります。経営者は自社を肯定的に表現する傾向があり、企業に対して肯定的な見通しを持っている（または持ちたい）アナリストは、経営者のコメントを額面通りに単純に受け取らないように注意する必要があります。

LOS 38.c: Explain how the competitive position of a company based on a Porter's five forces analysis affects prices and costs.

The competitive environment that a firm operates in and how successful it is in that environment are key in determining the firm's future financial results. There are no formulas for, or clear rules about, how a firm's competitive environment affects its future revenue and costs, but a firm's future competitive success is possibly the most important factor in its future revenue and profitability.

Porter's five forces are a framework analysts commonly use to evaluate a company's competitive position. We will introduce them here and describe them further in our Equity Investments reading on Industry and Competitive Analysis.

1. Companies have more pricing power when the threat of substitute products is low and switching costs are high. They have less pricing power when good substitutes are or may become available, and when it is less costly for customers to switch to those products.
2. Companies have more pricing power when the intensity of industry rivalry is low, and less pricing power when competitive intensity is high. Industry rivalry tends to be more intense when an industry has many competitors (is less concentrated), when fixed costs and exit barriers are high, when industry growth is slow or negative, and when products are not differentiated significantly.
3. Pressure on a company's costs may be higher, and its prospects for earnings growth lower, when the bargaining power of suppliers is high. If suppliers are few, they may be able to extract a larger portion of any value added.
4. Companies have less pricing power when the bargaining power of customers is higher, especially if a small number of customers are responsible for a large proportion of a firm's sales, or if switching costs are low.
5. Companies have more pricing power and better prospects for earnings growth when the threat of new entrants is low. Significant barriers to entry into an industry make it possible for existing companies to sustain economic profits over time.

LOS 38.d: Explain how to forecast industry and company sales and costs when they are subject to price inflation or deflation.

Input costs can be significant in many industries. The cost of jet fuel in the airline industry, the cost of grains to cereal and baking companies, and the cost of coffee beans to coffee shops are all variable. Changes in these costs can significantly affect earnings.
多くの業界では投入コストが膨大になる可能性があります。航空業界のジェット燃料のコスト、シリアル会社や製パン会社の穀物のコスト、コーヒーショップのコーヒー豆のコストはすべて変動します。これらのコストの変化は収益に大きな影響を与える可能性があります。

Companies with commodity-type inputs can hedge their exposure to changes in input prices through derivatives, or more simply through fixed-price contracts for future delivery. Such hedging will reduce the effect of short-term changes in input prices and increase the time until longer-term price changes affect costs and earnings. Companies that are vertically integrated (in effect, their own suppliers) are relatively less exposed to input cost risk.

For a company that neither hedges input price exposure nor is vertically integrated, the issue for an analyst is to determine how rapidly, and to what extent, an increase in costs can be passed on to customers, as well as the expected effect of price increases on sales volume and sales revenue.

An analyst should monitor a company's production costs by product category and geographic location, with a focus on the significant factors that affect input prices, such as weather, government regulation and taxation, tariffs, and the characteristics of input markets. It may be that a firm can reduce the impact of an increase in an input price by switching to a substitute input; for example, rising oil prices may lead power generation firms to switch from oil to natural gas.

When estimating the effects of an increase in input prices, an analyst must make assumptions about the company's pricing strategy and the effects of price increases on unit sales. When increases in input costs are thought to be temporary, a company may cut other costs (e.g., advertising expenses) to preserve operating margins. This strategy is, however, not appropriate for long-term increases in input costs.

The effects of raising a product's price depend on its elasticity of demand. For most firms, product demand is relatively elastic. With elastic demand, the percentage reduction in unit sales is greater than the percentage increase in price, and a price increase will decrease total sales revenue.

Elasticity of demand is most affected by the availability of substitute products. In a competitive industry, the pricing decisions of other firms in the industry can affect the market shares of its competitors. A company that is the first to increase prices in response to increased costs will experience a greater decrease in unit sales than a company that increases prices after other firms have already done so. A firm may decide to delay increasing prices to gain market share when other firms increase prices in response to increased costs. Firms that are too quick to increase prices will experience declining sales volumes, while firms that are slow to increase prices will experience declining gross margins.

If the money amount of the increase in cost per unit is added to product price and unit sales do not decrease (this is unlikely), the amount of operating profit is unchanged, but gross margins, operating margins, and net margins will decrease.

LOS 38.e: explain considerations in the choice of an explicit forecast horizon and an analyst's choices in developing projections beyond the short-term forecast horizon.

For a buy-side analyst, the appropriate forecast horizon may simply be the expected holding period for a stock. For example, a portfolio with a 25% annual turnover has an average holding period of four years, so four years may be the most appropriate forecast horizon.
バイサイドのアナリストにとって、適切な予測期間は単に株式の予想保有期間である可能性があります。たとえば、年間売上高が 25% のポートフォリオの平均保有期間は 4 年であるため、4 年が最も適切な予測期間となる可能性があります。

Highly cyclical companies present difficulties when choosing a forecast horizon. The horizon should be long enough that the effects of the current phase of the economic cycle are not driving above-trend or below-trend earnings effects. The forecast horizon should be long enough to include the middle of a business cycle so the analyst's forecast includes a midcycle level of sales and profits. Normalized earnings are expected midcycle earnings or, alternatively, expected earnings when the current (temporary) effects of events or cyclicality are no longer affecting earnings.
景気循環の激しい企業は、予測期間を選択する際に困難を伴います。経済サイクルの現段階の影響が収益への影響をトレンドを上回ったり、トレンドを下回ったりしないように、期間は十分長くなければなりません。アナリストの予測には、景気循環の中間レベルの売上と利益が含まれるように、予測期間は景気循環の中間を含めるのに十分な長さである必要があります。正規化収益は、サイクル半ばの予想収益、またはイベントや景気循環による現在の（一時的）影響が収益に影響を与えなくなったときの予想収益です。

Events such as acquisitions, mergers, or restructurings should be considered temporary. The forecast horizon should be long enough that the perceived benefits of such events can be realized (or not).
買収、合併、再編などのイベントは一時的なものと考えるべきです。予測期間は、そのようなイベントの認識される利益が実現できる (または実現できない) のに十分な長さである必要があります。

It may also be the case that the forecast horizon is dictated by an analyst's manager.
また、予測期間がアナリストのマネージャーによって決定される場合もあります。

For earnings projections beyond the short term, one method of forecasting future financial results is to assume that a trend growth rate of revenue over the previous cycle will continue. An analyst can estimate pro forma financial results based on the projection of each future period's revenue.
短期を超えた収益予測の場合、将来の財務結果を予測する 1 つの方法は、前サイクルと比較した収益のトレンド成長率が継続すると仮定することです。アナリストは、将来の各期間の収益予測に基づいて、プロフォーマ財務結果を見積もることができます。

An analyst will typically value a stock using earnings or some measure of cash flow over a forecast period, along with the stock's terminal value at the end of the forecast horizon. This terminal value is usually estimated using either a relative valuation (i.e., price multiple) approach or a discounted cash flow approach.
アナリストは通常​​、予測期間の収益またはキャッシュ フローの何らかの指標と、予測期間の終了時の株式の最終価値を使用して株式の評価を行います。この最終価値は、通常、相対評価 (つまり、価格倍数) アプローチまたは割引キャッシュ フロー アプローチのいずれかを使用して推定されます。

When using a multiples approach, an analyst must ensure that the multiple used is consistent with the estimate of the company's growth rate and required rate of return. Using the average P/E ratio for the company over the last 10 years, for example, presupposes that the growth in earnings and required rate of return of the stock will be, on average, the same in the future as it was over the previous 10 years.

When using a discounted cash flow approach to estimate the terminal value, two key inputs are a cash flow or earnings measure and an expected future growth rate. The expected earnings or cash flow should be normalized to a midcycle value that is not affected by temporary events. Because the terminal value is calculated as the present value of a perpetuity, small changes in the estimated (perpetual) growth rate of future earnings or cash flows can have large effects on estimated terminal values—and, hence, the current stock value.

Assuming that growth in future profitability will be the same as average profitability growth in the past may not be justified. A difficult part of an analyst's job is recognizing inflection points, those instances when the future will not be like the past. Examples of inflection points include changes in the economic environment or business cycle stage, government regulations, or technology.