mikeon88
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©«¤l 15453
¾\ŪÅv 255
µù¥U 2007-1-14 ¥Î¤áµù¥U¤Ñ¼Æ 6284
¥Î¤á¥¢ÂÜ¤Ñ¼Æ 0
118.169.162.107
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Á¿½Z4/21´¿ÃÒ©ú¥un°ªROE¡A«K©y¶R¡A³ø¹S²v´N·|³Ì¤j¡A
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During Lecture 4/21, it was demonstrated that the greatest investment return can be achieved when both the Return on ROE is high and the purchase price is cheap. We can calculate the expected return by using the ROE and purchase price. The ROE is determined by recurring net profit.
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recurring net = net profit - one-time profits
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One-time profits include gains from the disposal of land and stocks. The concept of intrinsic value implies that only profits that occur consistently each year are considered. Some companies may sell land to improve their financial statements when they experience poor profits, but these gains must be deducted as they are not recurring.
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Non-operating profits, such as investment income, will not be deducted as only one-time profits are considered. Companies such as Berkshire Hathaway, Hon Hai Precision Industry, Delta Electronics, and Giant Manufacturing, which have high investment income, would be eliminated if investment income were deducted. These are all great companies.
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Hon Hai Precision Industry and Giant Manufacturing have high investment income because they establish overseas factories through subsidiaries. Their investment income is considered part of their operating business. When evaluating a company's profit, what matters is whether it is recurring, including investment income. If you suspect that a company's financial report is not transparent, it is recommended to review the consolidated statement.
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Indicators related to net profit, such as ROE, PR%, EPS, and net profit over NT$500 million, will be adjusted to reflect recurring net profit. Financial stocks only deduct gains from the disposal of assets, as gains from the sale of stocks are considered part of their operating business.
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restated earnings(«½s²b§Q) §Y±`§Q
reported earnings(³øªí²b§Q) ¬°µ|«á²b§Q
restated = reported - ³B¤À§Q±o
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The concept of recurring net profit originated from my experience as an analyst at Jardine Fleming. Restated earnings are equivalent to recurring net profit, while reported earnings refer to net profit. Restated earnings are calculated by subtracting disposal gains from reported earnings. Similar terminology, such as recurring earnings, is used in other foreign securities firms.
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1. ²§±`§Q¯q
2. ²§±`µ|ÃB
3. ¼É¼WÆJ´î
One-time profits include
1. Unusual income
2. Tax abnormalities
3. Sudden increase and decrease
1. ²§±`§Q¯q
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§ë¸ê = [³B¤À§ë¸ê§Q¯q©Î·l¥¢]
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¸É§U = [¸É§U¦¬¯q]
°±·~ = [°±·~³æ¦ì·l¯q]
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1. Unusual income
Taiwan Stocks: Land + Investment + Others + Rent + Subsidy + Discountinued Operations
Land = [Disposal gains or loss on real property, plant and equipment]
Investment = [Disposal gains or loss on investment]
Other = [Other income-other]-[Other income and losses-other] + [Other operating income-other]-[Other non-operating income (expense)]
Rent = [Rental Income] + [Non-operating Rental Income (Expenses)]
Subsidy = [subsidy income]
Discountinued Operations = [Income or Loss from Discountinued Operations]
Thanks to Guangfu Siu for identifying the above accounting accounts
¬üªÑ¡G[unusual expense]¡A¥]§t
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US stocks: [unusual expense] including
Sale of land and stocks, Income or Loss from Discountinued Operations, goodwill, capital gain or loss on stock holdings
Goodwill: 4Q18 KHC withdraws $15.4 billion in goodwill impairment
Capital gain or loss on shareholding: 4Q18 Berkshire recognizes $35.4 billion of capital loss in holdings
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¤¤ªÑ¡G[«D¬y动资产处¸m损¥¢]+[¨ä¤¤:«D¬y动资产处¸m损¥¢]
Hong Kong Stocks: [Special Items] + [Sale of Assets]
China Stocks: [loss on disposal of non-current assets] + [including: loss on disposal of non-current assets]
2. µ|²v²§±`¤]·|¼vÅT±`§Qªº±À¦ô¡A
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2. Abnormal tax rates can also impact the estimation of recurring net profit. For example, in the fourth quarter of 2017, Trump's tax reform caused Berkshire Hathaway's ROE to increase from 6% to 16%. This situation is not unique to US stocks, as seen in other countries like Reckitt Benckiser (RBGLY). Therefore, abnormal tax must be deducted from recurring net profit.
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²§±`µ|ÃB¡×²b§Q - µ|«ex(1-¬Û¾Fµ|²v)
Abnormal tax is calculated when the tax rate is 1.2 times greater or 0.8 times less than the adjacent tax rate.
Abnormal tax amount = net profit - pre-tax x (1-adjacent tax rate)
¬Û¾Fµ|²v±Äpercentile(¬Ûªñ3¦~µ|²v, 0.5)¡A
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The adjacent tax rate is determined by using a percentile of the tax rate for the previous three years (0.5). If the tax rate exceeds the upper limit of 35% or falls below the lower limit of 0%, the adjacent tax rate from the previous period will be used instead. If the company incurs a loss before tax, the abnormal tax amount is not adjusted.
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2018/12 UL ¥X°â·~°È§Q¯q¦C©óÀç§Q¡A¾ÉPÀç§Q¼É¼W
2018/12 FMS ·~¥~¦¬¤J¼É¼W
2018/9 NWL ±`§Q¼É¼W¬d¤£¥Xì¦]
3. One-time income is considered unusual income and can be hidden in various accounts, leading to sudden increases or decreases in recurring profits. For example, in December 2018, Unilever's (UL) sale of business benefits was recorded in their operating profit, resulting in a surge in operating profit. Similarly, in December 2018, Fresenius Medical Care (FMS) reported a surge in non-operating income. In September 2018, Newell Brands (NWL) experienced a sudden surge in recurring net profit, for which no clear explanation was found.
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¦¸®t = percentile(«e5¦~±`§Q, 0.3)
In case of a sudden decrease in recurring profit, the worst result is replaced with the second worst result from the past five years. This is done to avoid expensive stocks turning from cheap to expensive due to a sharp decline in profit in a given year.
The second worst recurring profit = percentile (the first 5 years of recurring profit, 0.3)
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¥B±`§Q²v¤j©ópercentile(«e5¦~±`§Q²v, 0.7)x1.3
«h¼É¼W = ±`§Q - À禬 x percentile(«e5¦~±`§Q²v, 0.7)
±`§Q²v =±`§Q / À禬
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In case of a sudden increase in recurring profit despite a lack of significant sales growth, the following criteria are used:
If the sales for the year are less than 1.15 times the sales of the previous year,
and recurring profit margin is greater than percentile (the first 5 years recurring profit margin, 0.7) x 1.3
then sudden increase = recurring profit - sales x percentile (the first 5 years of recurring profit margin, 0.7)
recurring profit margin = recurring profit/sales
Special thanks to Curry for providing guidance.
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¦¸¨Î = percentile(«e5¦~±`§Q, 0.7)
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If the recurring profit has increased by three times, then the best recurring profit will be replaced with the second best
Second best of recurring profit = percentile (the first 5 years of recurring profit, 0.7)
Thanks Curry for instruction.
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After obtaining the recurring profits, we will use the recurring profits of the previous five years to calculate the expected recurring profits. We only use the profits of the first five years, as profits beyond five years have little impact on stock prices. For this year, we will use the profits of the past four quarters.
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Recurring profits for the first 3 years:
Take percentile (first year: third year, 0.7)
Take percentile (first year: third year, 0.3)
Simple average for the last 2 years
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The sudden increase and decrease mentioned earlier only apply to the recurring profits in the last 2 years and not the first 3 years.
The calculation ercentile (the first 3 years of recurring profits, 0.7) and percentile (the first 3 years of recurring profits, 0.3) involves using the recurring profits from the first 3 years and eliminating those that are outside this range.
·í±`§Q©¹¤W¡A«á2¦~¥§¡¤j©ópercentile(«e3¦~, 0.7)®É¡A
¹w´Á±`§Q = 0.3xpercentile(«e3¦~, 0.7) + 0.7x«á2¦~¥§¡
When recurring profit grow, the average of the last 2 years is greater than percentile (the first 3 years, 0.7),
expected recurring profit = 0.3xpercentile (the first 3 years, 0.7) + 0.7x the average of the last 2 years
·í±`§Q©¹¤U¡A«á2¦~¥§¡¤p©ó0.8xpercentile(«e3¦~, 0.3)®É¡A
¹w´Á±`§Q = 0.3xpercentile(«e3¦~, 0.3) + 0.7x«á2¦~¥§¡
When recurring profit decline, the average of the last 2 years is less than percentile (the first 3 years, 0.3),
expected recurring profit = 0.3xpercentile (the first 3 years, 0.3) + 0.7x the average of the last 2 years
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¹w´Á±`§Q = 0.55xpercentile(«e3¦~, 0.3) + 0.45x«á2¦~¥§¡
When recurring profit is flat,
expected recurring profit = 0.55xpercentile (the first 3 years, 0.3) + 0.45x the average of the last 2 years
¹w´ÁROE = ¹w´Á±`§Q / ¥h¦~²bÈ
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Expected ROE = expected recurring profit / last year's net assets
Instead of directly averaging the ROEs of the past 5 years, we use the expected recurring profit to calculate the expected ROE. This is because the average ROE method can be inaccurate when there are significant changes in net assets, such as a buyback of treasury shares or a large amount of rights issue.
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Obtaining expected ROE through expected recurring profit does not imply that the company's future profits will be limited to expected recurring profit. Instead, they will be achieved through the expected ROE. As net assets increase, future profits will continue to grow.
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If you find the default expected recurring profit to be unreasonable, you can manually adjust it. For instance, during the bottom of the business cycle of cyclical stocks or when the company's performance deteriorates for a while, you can substitute the recurring profit during a normal period by yourself.
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