Valuation of Cash Flows with Constant Leverage: Further Insights
It is widely known that if the leverage is constant over time, then the cost of equity and the Weighted Average Cost of Capital (WACC) for the free cash flow, FCF, is constant over time. In other words, it is inappropriate to use a constant WACCFCF to discount the free cash flow (FCF) if the leverage changes over time and some conditions are not satisfied. However, it is common to find analysts who inconsistently use a constant WACCFCF even if the leverage is not constant and the proper conditions are not satisfied. In this teaching note, we use a simple numerical example to illustrate how to modelcash flows that are consistent with constant leverage. We verify the consistency of the example with two basic principles: conservation of cash flows and conservation of values. The note is based on a previous one and includes the procedure to value with constant leverage when some restrictive conditions are not satisfied.
Some Evidence of Financial Distress Costs (Alguna Evidencia Sobre Los Costos De Dificultades Financieras)
En este trabajo se exploraron diversas hipotesis acerca del efecto del endeudamiento sobre algunos indicadores de la firma aplicando analisis de datos de panel: crecimiento real, plazo de proveedores, margenes bruto y operativo. Exploramos si hay evidencia estadistica de la influencia del nivel de endeudamiento contable en los costos de dificultades financieras o de quiebra que resultarian del deterioro de los mencionados indicadores. Se exploraron cuatro hipotesis con las siguientes variables dependientes: margen operativo, margen bruto, crecimiento real en ventas y plazo de proveedores. Para estimar los costos de dificultades financieras o de quiebra asociados con cada variable dependiente se elaboraron modelos de tipo semi-logaritmico (lin-log) y de tipo logaritmico (log-log) usando la metodologia de panel de datos. La muestra de datos utilizada fue de 644 empresas del sector comercial suministrada por la Superintendencia de Sociedades de Colombiana (muestra balanceada). Tambien se examinaron 683 empresas (muestra no balanceada) con analisis de regresion. Se encontro que si hay relacion entre el endeudamiento contable percibido por el mercado, las tasas de crecimiento real y el margen bruto. Esto nos permite explorar la posibilidad de introducir los costos de dificultades financieras en los flujos de caja. Se presenta un modelo que permite incorporar ese efecto en los estados financieros proyectados lo cual se reflejara en los flujos de caja para la valoracion de la firma. La interaccion entre la tasa de descuento (costo promedio ponderado de capital) y valor calculado con los flujos de caja, permitiria eventualmente, identificar una estructura optima de capital.
Assessing the Competitiveness of the Philippine Auto Parts Industry
The development of the Philippine automotive parts and components sector is critical to the automotive assembly industry. The availability of competitive parts and components that are locally manufactured can significantly contribute to boost the competitiveness of the assembly sector. Given the current state of small and medium manufacturers, making them internationally competitive and linking them with regional production networks are major challenges. Less competitive firms will have to contend with reduced market shares and eventually bankruptcy. The few remaining competitive ones need to define their strategies and the market position that they want to pursue. The government has an important role to play in the firms adjustment process. While increasing economic integration represent market opportunities; penetrating the export market is not easy and does not come automatically. As the firms search for internal ways and exert effort to improve their competitiveness, this must be complemented with active government support.