The Decision Page offers investors interactive and dynamic valuation analysis tools for all companies in
the New Constructs Database. Clients can review the valuation results of multiple forecast scenarios, as well
as the impact of those scenarios on the different stock prices.
Economic Earnings Margin (Avg.) : average of ROIC minus WACC
GAP (Growth Appreciation Period): see below
Growth Appreciation Period (GAP)
The number of years into the future a company earns positive Economic Earnings
Margin and/or the period of time that a company's ROIC is expected to exceed its WACC on new
investments.
Historical Performance Section
Presents the historical results of each performance hurdle according to:
Last 5 years of available data
Last 3 years of available data
Latest Fiscal Year
Scenario 1 Section (blue)
Presents the future results for each performance hurdle that are required to
justify the entered stock price as well as prices 50% greater and less than the entered stock
price.
Functionality
View the valuation impact of different future performance
scenarios
View the performance required to justify different stock
prices
The Forecast Page Help enables you to
define scenarios according to your specific expectations for Optimistic, Neutral and
Pessimistic forecasts.
NOTE: Only the Default scenario has been automatically populated. Users
must define the Optimistic, Neutral and Pessimistic scenarios before they may be used.
Scenario 2 Section (yellow)
Same as Scenario 1. Meant to provide real-time comparison of different
financial performance scenarios and their valuation impacts.
Functionality
1. Same as Scenario 1.
Decision Chart
Plots the DCF share prices up to and five years past the GAPs generated by
Scenarios 1 and 2.
Functionality
Automatically refreshes based on selections and changes made in both
Scenario 1 and Scenario 2.
The Forecast Page shows users the explicit forecasts behind the Default, Optimistic, Neutral and
Pessimistic scenarios. The Edit Button on this page enables users to modify forecasts for the Optimistic,
Neutral and Pessimistic scenarios.
Select a Scenario to Modify
From this drop-down menu, select the Scenario you wish to Edit.
Edit button
Clicking this button permits users to edit the selected scenario as per
above.
Save button
Clicking this button saves and updates the inputs that were modified for the
Selected Scenario.
Cancel button
Clicking this button reverts inputs for selected scenario to the most
recently saved values.
Estimates Time Frames
Historical performance for the past five years:
The historical performance provides the relevant context for estimating each
of the estimate items.
Future Estimates
We break estimates for the next 100 years into 10 buckets.
EY 1, EY 2, and EY 3 are buckets for inputting each of the next three
individual years.
EY 4-5 is the bucket for inputting estimates for the 4th and
5th future years.
EY 6-10 is the bucket for inputting estimates for the 6th through
the 10th future years.
EY 11-15 is the bucket for inputting estimates for the 11th
through the 15th future years.
EY 16-20 is the bucket for inputting estimates for the 16th
through the 20th future years.
EY 21-25 is the bucket for inputting estimates for the 21th
through the 25th future years.
EY 26-50 is the bucket for inputting estimates for the 26th
through the 50th future years.
EY 51-100 is the bucket for inputting estimates for the 51st
through the 100th future years.
Estimate Items
Revenue Growth - drives the Revenue CAGR calculation of the Decision
Page.
ROIC forecasts are driven by:
NOPBT Margin equals NOPBT/Operating Revenue see NOPAT Page Help
Section for more detail
Cash Tax Rate equals Cash Operating Taxes/NOPBT - see NOPAT
Page for more detail
These two items combine to provide the NOPAT Margin which drive
NOPAT forecasts based on Revenue Forecasts
NWC Delta as % of Rev Delta equals the changes in Net Working Capital
as a percent of the changes in Revenue. The results shows how much NWC is required for each
incremental $ of revenue. See the Invested Capital Page for more detail.
Fixed Assets Delta as % of Op Delta equals the changes in Fixed
Assets as a percent of the changes in Revenue. The results shows how much Fixed Capital is
required for each incremental $ of revenue. See the Invested Capital Page for more
detail.
These two items combine to provide the Incremental Capital
forecasts which are deducted from NOPAT to calculate Free Cash Flow.
WACC is set on the WACC Review Page as per the Current DCF
WACC
Economic Earnings Margin on the Decision Page equal the Average ROIC over
the relevant GAP minus the Current DCF WACC.
Overrides allow users to input and modify values for important components of the Company Model (see list
below). Overrides are a powerful feature that enables users to modify both historical profitability analyses
as well as valuation results. We encourage users to utilize this feature and to be mindful of the impact your
Overrides have on results throughout the model.
In the Source Review section, the DCF Review page, and the WACC Review page, each line item is delineated
as an Override by two icons.
= marks an item that can be overridden.
= marks an item that has active overrides in effect.
Overrides Page
On the Overrides page, you activate individual overrides by checking the checkbox to the left of the
override name. When you click 'save', the Company Model is regenerated with the selected overrides activated.
You can verify that an override is active by accessing the relevant Source Review, DCF, and WACC pages.
Following is a full listing of Overrides available:
NOPAT Overrides
Goodwill Amortization
Employee Stock Option (ESO) Expense
Implied Interest for Present Value of Operating Leases
The DCF Review Page shows users the explicit results of the Default, Optimistic, Neutral and Pessimistic
scenarios. New Constructs' dynamic discounted cash flow model calculates a value per share for every forecast
horizon between now and the next 100 years. The Value for each year is based on the Cumulative Present
Value of Free Cash Flows generated over each time period plus the Present Value of the Terminal
Value which equals NOPATT+1 divided by WACC. This Terminal Value calculation assumes no
future profit growth. Accordingly, each Value Per Share represents the Value of a given company's stock over
100 different GAPs. For more explanation, see How New Constructs Dynamic Discounted Cash Flow
Model works.
Select a Scenario to View
From this drop-down menu, select the Scenario you wish to view.
Definitions of Items in order of appearance.
Total Revenues
Total Revenues - for more detail see NOPAT Page
Total Revenues Growth
Total Revenues Growth - for more detail see NOPAT Page
NOPBT
Net Operating Profit Before Tax - for more detail see NOPAT Page
NOPBT Margin
NOPBT/Revenues - for more detail see NOPAT Page
Cash Tax Rate
Cash Operating Taxes/NOPBT
NOPAT
Net Operating Profit After-Tax - for more detail see NOPAT Page
NOPAT Margin
NOPAT Margin - for more detail see NOPAT Page
NWC Delta
Year over Year change in Net Working Capital - for more detail see Invested
Capital Page
Fixed Assets Delta
Year over Year change in Total Fixed Assets - for more detail see Invested
Capital Page
Incremental Capital
NWC Delta plus Fixed Assets Delta
Free Cash Flow
NOPAT minus Incremental Capital
Present Value (PV) of FCF
FCF/(1+WACC)^Years into the Future
Cumulative PV of FCF
Cumulative Present Value of Free Cash Flow
Terminal Value
(NOPATT+1) /WACC
PV of Terminal Value
Terminal Value/(1+WACC)^Years Into the Future
Corporate Value
Cumulative PV of FCF plus PV of Terminal Value
Excess Cash
Excess Cash from latest FYE - for more detail see Invested Capital Page
Unconsolidated or Non-Operating Assets
Any assets excluded from Invested Capital and whose revenues are excluded
from NOPAT
Total Debt
Total Debt from latest FYE - for more detail see Invested Capital Page
Preferred Stock
Preferred Stock from latest FYE - for more detail see Invested Capital
Page
Minority Interest
Minority Interest from latest FYE - for more detail see Invested Capital
Page
Value of Outstanding ESOs After-Tax
Value Owed to Employees as per the currently outstanding Employee Stock
Options. All currently outstanding ESOs represent employee's claim to the future cash flows of the
company. Additional ESO grants represent future cash costs for which we account in our NOPAT
calculation. for more detail see ESO Page.
Net Funded Status for Pensions
Deducts the liability for under-funded pension and adds the amount of
over-funding. Under/over funded pensions represent liabilities/assets that decrease/increase the value
available to existing shareholders.
Shareholder Value
The value of the firm to which current common shareholders may lay claim.
This item is equal to the Corporate value plus Excess Cash and the Value of
Unconsolidated/Non-operating assets less Total Debt, Preferred Stock, Value of Outstanding ESOs and
Minority Interests.
Current Basic Shares Outstanding
We divide Shareholder Value by Basic Shares Outstanding because we have
already accounted for Outstanding ESOs in our Shareholder Value calculation.
Value Per Share
Shareholder Value divided by Basic Shares Outstanding
GAP
Growth Appreciation Period
Revenue CAGR
Compounded Annual Growth Rate for each GAP
Geo-Mean Economic Earnings Margin
The geometric mean for Economic Earnings Margin for each GAP
Geo-Mean NOPAT Margin
The geometric mean for NOPAT Margin for each GAP
Geo-Mean Average Invested Capital Turns
The geometric mean for Average Invested Capital Turns for each GAP
The WACC Review Page shows users the explicit inputs and approach to calculating WACC historically as
well as the Current DCF WACC, which is used as the discount fact in our DCF model. For more explanation, see
WACC: Definition and Calculation.
At the bottom of the WACC Review Page, we provide a special section Enterprise Value Analysis for
analyzing historical and current Enterprise Values.
Definitions of Items in order of appearance.
Special Note
All values are based on the relevant Fiscal Year End ( e.g. 12/31) for each year presented, except the
Current DCF WACC. Stock prices are updated daily. Risk-Free Rate, Beta, and Expected Market
Return are updated quarterly. All else is updated annually.
WACC Formula:
WACC = (Ke)*(E/TC) + (Kd)*(D/TC)+Kp*(P/TC)
Cost of Equity Calculation
Risk-Free 30yr Treasury
Risk Free rate based on the 30yr Treasury Bond.
Beta
Beta Industry Average as derived by New Constructs
Expected Market Return
Adjusted long-term historical average for forward-looking Expected Market
Return.
Equity Risk Premium
Expected Market Return minus The Risk-Free Rate
Cost of Equity (Ke)
Risk Free Rate + (Beta*Equity Risk Remium)
Market Value of Equity
(Stock Price*Basic Shares Outstanding) + Value of Outstanding ESOs
Equity/Total Adjusted Market Value (E/TC)
Market Value of Equity/(Market Value of Equity + Total Debt + Preferred
Equity)
Weighted Cost of Equity
Cost of Equity * (Equity/Total Adjusted Market Value)
Cost of Debt Calculation
Risk-Free 30yr Treasury
Risk Free rate based on the 30yr Treasury Bond.
Debt Rating
S&P long-term Credit Rating on Senior Debt
Debt Spread
Spread over the risk free rate assign to each Debt Rating
Marginal Tax Rate
For more information see the Income Statement Page
The Balance Sheet Page shows users all the explicit historical values pulled from each individual
company's Balance Sheet as provided in every 10K going back to 1998. We use normalized Line Item names to
display the actual Balance Sheet line item values to prevent cluttering this view with every line item used
over the historical time frame we analyze. New Constructs actually pulls the explicit line item name along
with the values for every company. We plan to provide views of this information on an annual basis soon.
Note
Because we normalize line item names, we chose the most common names across all companies. Unfortunately,
this process short-changes certain industries such as Financials and Utilities. This problem will be remedied
when we add the feature that presents the actual line item names and values for each Fiscal Year for each
company.
The Income Statement Page shows users all the explicit historical values pulled from each individual
company's Income Statement as provided in every 10K going back to 1998. We use normalized Line Item names to
display the actual Income Statement line item values to prevent cluttering this view with every line item
used over the historical time frame we analyze. New Constructs actually pulls the explicit line item name
along with the values for every company. We plan to provide views of this information on an annual basis
soon.
Note
Because we normalize line item names, we chose the most common names across all companies. Unfortunately,
this process short-changes certain industries such as Financials and Utilities. This problem will be remedied
when we add the feature that presents the actual line item names and values for each Fiscal Year for each
company.
We start with GAAP Net Income and show all the adjustments required to
convert GAAP Net Income to NOPAT.
Net Non-Operating Expenses
All non-operating expenses minus non-operating income.
Net Non-Operating Expenses After Tax
All non-operating expenses minus non-operating income After-Tax.
Net Non-Operating Expenses After-Tax as a % of Revenues
% of Revenues of the Net Non-Operating Expenses After-Tax
Change in Deferred Taxes
Change in Deferred Taxes as taken from the Cash Flow Statement.
Change in Deferred Taxes as a % of Revenues
% of Revenues of the Change in Deferred Taxes
Change in Reserves
Change in all Reserves as taken from the LIFO, Loan-Loss and all other
Non-Cash Reserves.
Change in Reserves as a % of Revenues
% of Revenues of the Change in Reserves
Goodwill Amortization
Goodwill Amortization Expense as taken from the Income Statement, Cash Flow
Statement or as derived from the change in Accumulated Goodwill Amortization except in the first year
of historicals. If companies do not provide relevant Goodwill Amortization Expense in the Income
Statement or Cash Flow Statement, we assume that Goodwill Amortization expense in the first year of
history is represents the same % of revenue of the year immediately following.
Goodwill Amortization as a % of Revenues
% of Revenues of the Goodwill Amortization
Annual Employee Stock Option (ESO) Expense
The economic expense attributable to the annual granting of stock options to
employees. For more detail on how we calculate the Annual ESO Expense see the ESO Page
ESO Expense as a % of Revenues
% of Revenues of the ESO Expenses
ESO Expense After Tax
The ESO expense net of taxes.
ESO Expense After-Tax as a % of Revenues
% of Revenues of the ESO Expense After-Tax
Interest from Capitalized Operating Leases
The implied interest derived from Capitalizing off-balance sheet assets as
reported in the Operating Leases section in the company's 10K. For more detail on how we calculate the
Interest from Capitalized Operating Leases see the PV Leases Page.
Interest from Capitalized Op Leases as a % of Revenues
% of Revenues of the Interest from Capitalized Operating Leases
Interest from Capitalized Op Leases After Tax
Interest from Capitalized Op Leases net of taxes.
Interest from Capitalized Op Leases After-Tax as a % of Revenues
% of Revenues of the Interest from Capitalized Op Leases After-Tax
Because NOPAT measure the true Operating Profit of a business all
non-operating expenses and income are removed. To arrive at the true operating profit after-tax, we
also reverse for the tax benefit of non-operating expenses and the tax burden of non-operating
income.
Change in Deferred Taxes
Increases and decreases in deferred tax represent the difference between the
reported income tax provision and what the company actually paid. To assess the true operating profit
of the company we increase NOPAT by the amount of the increase in Deferred Taxes and do the opposite
for decreases in Deferred Taxes.
Change in Reserves
Increases (decreases) in Reserves represent cash additions (subtractions).
New Constructs calculation of NOPAT appropriately captures the impact of these changes.
Goodwill Amortization
Goodwill Amortization is a non-cash expense. As such, we add it back to
calculate NOPAT.
ESO Expense After Tax
The granting of employee stock options represents a transfer of value away from
existing shareholders to employees. ESOs represent an operating compensation
expense that decreases the profits of a company. The dilution of outstanding
shares accounts only for exercisable options and does not capture the full
economic impact of this granting ESOs. Prior to the adoption of ASC Topic 718,
GAAP did not require recognition of ESO expense. Accordingly, we deduct ESO
expenses (after accounting for the implied tax benefit of the expense) from our
calculation of NOPAT prior to the adoption of ASC Topic 718 and use Basic
instead of Diluted Shares Outstanding for all relevant calculations. For more
detail on how we calculate the Annual ESO Expense see the ESO Page.
Many companies, especially profitable companies, carry more cash on their
balance sheets than is required to sustain their business. For example, Microsoft's business is not
capital intensive and the company does not utilize the majority of the cash on its balance sheet.
Invested Capital measures the amount of capital required to operate the company's business. Hence,
unneeded cash is considered a non-operating asset and is not included in our calculation of Invested
Capital. For more information on the calculation of Excess Cash, see the Invested Capital
Page.
Total Reserves
LIFO Reserves, Loan-Loss Reserves and other Non-Cash Reserves represent cash
required for the company to run its business. Hence, we add the value of these reserves to our Invested
Capital calculation. For more information, see the Invested Capital Page.
Deferred Tax Liability
We consider the long-term portion of unpaid(Deferred) taxes to be an equity
equivalent and include it in our calculation of Invested Capital. For more information, see the
Invested Capital Page.
PV of Operating Lease Obligations
Operating Leases represent the off-balance sheet equivalent of Capital
Leases. We calculate the Present Value of all operating lease payments and add the aggregate value to
Invested Capital. This approach ensures we are able to perform apples-to-apples comparisons between
those companies that utilize Capital Leases and those that utilize Operating Leases. As such, this
adjustment prevents use of different accounting policies from undermining your ability to compare the
economic performance of different companies. For more information on how this item is calculated, see
the PV Leases Page.
Accumulated Unrecorded Goodwill
Unrecorded Goodwill equals [(number of shares issued in a Pooling
Acquisition * the price of the shares issued) - the book value of the company acquired]. Note that the
Pooling Method of Accounting was discarded by the SEC after 2001. Carrying Unrecorded Goodwill in our
Invested Capital calculation into perpetuity is consistent with our policyto do the same with purchased
or recorded Goodwill. This adjustment ensures we are able to perform apples-to-apples comparisons
between those companies that utilized the Pooling Method of Accounting and those that utilized the
Purchase Method for acquisitions. As such, this adjustment prevents use of different accounting
policies from undermining your ability to compare the economicperformance of different companies. For
more information, see the Invested Capital Page.
Accumulated Goodwill Amortization
Because we increase NOPAT by the amount of Goodwill Amortization, we must
also increase Invested Capital by the amount of Accumulated Goodwill Amortization to be consistent in
our calculation of ROIC. In addition, we consider Goodwill an investment in future synergies, the value
of which does not depreciate over time as do tangible assets. In fact, the longer two merged companies
are together, the more they learn about each other and the more likely they are to find additional
and/or greater synergies. This fact does not account for the amount of Goodwill in which companies all
too often invest. For more information, see the Invested Capital Page.
Cumulative Asset Write-Offs After-Tax
Writing down assets permits companies to arbitrarily decrease the carrying
value of assets on their balance sheets. These write-offs are a direct deduction to shareholder equity
and unfairly reduce the amount of shareholder capital that companies must report artificially boosting
ROE. Hence, we add the after-tax value of all write offs to Invested Capital. This adjustment ensures
we are able to perform apples-to-apples comparisons between those companies that write-down more assets
than others. As such, this adjustment prevents use of different accounting policies from undermining
your ability to compare the economic performance of different companies. For more information, see the
Invested Capital Page.
Accumulated Other Comprehensive Income
FAS 130 and 133 created the Accumulated Other Comprehensive Income (OCI) to
capture the impact of Minimum Pension Liability Adjustments, Unrealized Gains/Losses from Investments
(incl. Hedging Instruments) and Foreign Currency translation on the Balance Sheet. The components of
OCI create often ephemeral gains/losses to be added to the Balance Sheet. In addition, we already
capture the impact of over/under funded pensions so keeping OCI in Invested Capital would be
double-counting the minimum pension liability. Hence, we deduct For more information, see the
Invested Capital Page.
More detail on FAS 130 and 133:
FAS 130 defines the required presentation of comprehensive income as a new basic financial statement,
rather than an item of disclosure. Paragraph 26 of FAS 130 requires presentation of the components of
the accumulated balance of other comprehensive income items on the face of the financial statements or
in footnotes.
FASB Statement 133, Accounting for Derivative Instruments and Hedging Activities, is effective for
financial statements for all fiscal quarters of fiscal years beginning after June 15, 1999. The
transition adjustments resulting from adoption must be recognized in income and other comprehensive
income (stockholders' equity), as appropriate, as a cumulative effect of an accounting change. FAS 133
supersedes FAS 80, Accounting for Futures Contracts, FAS 105, Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk,
and FAS 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments,
and amends the hedgingsections of FAS 52, Foreign Currency Translation to permit special accounting for
a hedge of a foreign currency transaction with a derivative.
The NOPAT page presents users with New Constructs' calculation of NOPAT from both the Operating Approach
and the Financing Approach for at least five years of history. NOPAT represents the after-tax operating cash
generated by the business, excluding non-recurring losses and gains, financing costs, and goodwill
amortization and including the compensation cost of employee stock options (ESOs). This page details exactly
how we arrive at our NOPAT values. For a general overview of how we calculate NOPAT please review: New Constructs' System Reconciliation of Data Anomalies in the
Methodology Help Section.
At the bottom of the NOPAT page, we offer the following special sections:
The ESO page provides a step-by-step overview of how we capture two important economic impacts of
granting Employee Stock Options (ESOs). We refer you to this page for more information on:
Annual compensation expense equal to the economic value imparted to employees via
stock option grants.
Liability of all outstanding ESOs on the future cash flows of the
business.
The Invested Capital page presents users with New Constructs' calculation of Invested Capital from both
the Operating Approach and the Financing Approach for at least five years of history. Invested Capital
represents the sum of all cash that has been invested in a company over its life without regard to financing
form or accounting name. It is the total of investments in the business from which operating revenue is
derived. This page details exactly how we arrive at our Invested Capital values. For a general overview of
how we calculate Invested Capital please review: Invested Capital Definition and
Calculation. For detailed information on the adjustments we make to reported financial statements in
order to calculate Invested Capital, please see: Adjustments
Page-Help.
For information on how we calculate Average Invested Capital Turns and the Invested Capital Delta as a % of
Revenue Delta please see the Invested Capital Efficiency Section
below.
The PV Leases page provides a step-by-step overview of how we convert off-balance sheet operating leases
to on balance sheet liabilities. We refer you to this page for more information on:
Implied interest expense and its impact on NOPAT.
Aggregate present value of future lease payments and this hidden asset's impact on
Invested Capital.
There are several sources for the data inputs required to develop Company Models. They are divided into
two categories:
Historical Data
10-K filings are the primary sources, and provide all the information required to
perform historical analyses in our Company Models. Note that New Constructs pulls critical information
from all Financial Statements in addition to the Notes to Financial Statements and Management's
Discussion and Analysis section of 10Ks and 10Qs. Indeed, the Notes to Financial Statements and
Management's Discussion and Analysis provided the information required to convert accounting results into true
economic results.
Credit Ratings are provided by S&P.
Stock prices data come from Commodity Systems, Inc. (CSI).
Forecast Data
The Default Scenario is created by New Constructs analysts to provide the most
useful results for clients.
The Default Scenario estimates are derived from analysis of historical performance
and historical trends for each company. For every company, long- term (26 years and beyond) Revenue
Growth estimates revert to a mean of 6.5%, which equals the average nominal GDP growth rate since
1929. Other estimates (including pre-tax profit margin, tax rates and capital requirements) are
usually held constant over the entire forecast period.
