Long-term Valuation Research Articles

A Financial Analysis and Valuation of Home Depot

This study aims to research and analyze the firm’s valuation of Home Depot by exploring the company’s background and recent events, evaluating company performance, forecasting future development, and discovering the firm’s strategy and risk. The performance evaluation uses liquidity, solvency, and profitability to assess the firm operations and use of resources. The additional valuation adopts current and next year’s forecast financial data to measure the company’s EPS and revenue growth rate, P/E, PEG, and GP/A ratios. The results show that Home Depot has high liquidity, high profitability, and low solvency from its operational performance, as well as a high long-term valuation forecast in the home improvement retail industry. This consequence implies that Home Depot may have efficient business management and sound financial health by effectively meeting short-term obligations and using assets to generate revenue. Meanwhile, the company may also pose several risks, including an unstable economic environment, difficulty meeting long-term obligations, the continued decline in annual gross margins and ROIC, and potential stock overvaluation for investors.

PENGARUH PERTUMBUHAN PERUSAHAAN, DIVIDEN, PROFITABILITAS DAN STRUKTUR MODAL TERHADAP NILAI PERUSAHAAN PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BURSA EFEK INDONESIA PERIODE 2016-2021

The main objective of the company is to enhance the overall value of the company. This increase in value then impacts the welfare of employees, thereby influencing the long-term valuation of the organization. Researchers aim to investigate the elements affecting the high valuation of manufacturing businesses listed on the Indonesia Stock Exchange (IDX) during the period 2016-2022. This research examines several independent factors, including company growth, dividends, profitability, and capital structure. The dependent variable studied is the company's value. This study utilizes secondary data derived from the annual financial reports issued by manufacturing companies during the period 2016-2021, obtained from the official website of the Indonesia Stock Exchange. The research employs a research methodology utilizing quantitative techniques, particularly simple linear regression and multiple linear regression, as the primary research methods. The study focuses on the research population, namely manufacturing companies listed on the Indonesia Stock Exchange during the period 2016-2021. The sample size for this study consists of a total of 12 companies. The research findings indicate that company expansion has a detrimental impact on company value, while dividends have a beneficial effect in increasing company value. Furthermore, profitability is proven to have a significant positive relationship with company value, and capital structure also appears to have a significant positive impact on company value. Additionally, the simultaneous testing conducted, either jointly or simultaneously with the dependent variable, shows that all independent factors examined in this study have statistically significant and positive impacts on the dependent variable, namely company value.

공장의 매매가격 결정요인에 관한 연구

Research on the factors influencing the sale price of industrial complex factories, which play a crucial role in the entire manufacturing industry in Korea, is still incomplete. In this study, we empirically analyzed the characteristics of factories in industrial complexes to determine their impact on the sale price. This empirical analysis is based on data collected from 333 factories in the three main industrial complexes of small and medium enterprises in the metropolitan area: Banwol, Sihwa, and Namdong. The analysis results are as follows. First, in terms of location characteristics, the distance from highway interchanges and the distance from the subway station have a negative (-) the transaction price, while proximity to a main road has a positive effect. Second, concerning the building's characteristics, a larger the land area and total floor area, as well as a more complex main building structure, have a greater positive impact on the transaction price. However, the useful life negatively affects the transaction price because of physical and functional depreciation. Third, it was confirmed that the industry factory's industry affects the transaction price in relation to industry characteristics. Fourth, concerning regional policy characteristics, the designation of a regeneration business district has a positive impact on the transaction price. Therefore, manufacturing companies interested in acquiring factories in industrial complexes should conduct precise calculations of sales prices and make purchase decisions based on a medium- and long-term valuation and analysis of industrial properties and manufacturing companies . This should involve thorough consideration of location, building, industry, buyer, and regional policy characteristics specific to the main industry.

Can ETFs affect U.S. financial stability? A quantile cointegration analysis

This study evaluates whether exchange traded funds (ETFs) threaten financial market stability by testing two hypotheses relating the growing importance of ETFs to increased market volatility and rising equity valuations. We estimate quantile cointegration models using Standard & Poor's 500 Index (S&P 500) and Chicago Board Options Exchange volatility Index (VIX) data for 1994–2020. We found that an increase in ETFs is positively and significantly related to the long-term valuation of the S&P 500 for quantile values above the median. By contrast, ETFs have only a negative and significant effect on the VIX for quantiles around the median. Ultimately, two novel results were obtained. First, the distortion in the value of the S&P 500 relative to its fundamentals is driven by investor flow into ETFs during a bull market. Second, the impact of equity ETFs on the VIX is only affected when fundamental factors are in play, decreasing it. Therefore, ETFs contribute to forming equity bubbles and support valuation market dynamics. Both regulators and policymakers should consider these conclusions.

The implementation of long-term prudent valuation models across the UK and Mainland Europe for financial regulation purposes

ABSTRACT The Basel 3 guidance on bank regulation includes a new definition of real estate valuation which differs from existing bases. Prudently conservative valuation or prudent value includes four criteria which include the exclusion of ‘expectations of price increases’ and it must be ‘adjusted to take into account the potential for the current market price to be significantly above the value that would be sustainable over the life of the loan’. ‘National supervisors should provide guidance’ and ‘If a market value can be determined, the valuation should not be higher than the market value’. Prudent value has synergies with existing post Global Financial Crisis (GFC) debates concerning long-term valuations for commercial real estate bank loan origination and monitoring purposes. This paper outlines the concepts of long-term and prudent values in more detail, reviews the literature on long-term valuation and develops a framework for prudent value. It also puts that literature into a wider perspective on the analysis of market cycles and portfolio disaggregation within performance measurement, and suggests ways in which the property industry could implement the current Basel 3 prudent value proposals.

Abstract WMP79: Mobility Impairment is Not Associated With Long-Term Valuation of Health by Survivors of Intracerebral Hemorrhage: A Mediation Analysis

Introduction: Clinical trial outcomes such as the modified Rankin score (mRS) are heavily influenced by mobility. We examined if mobility impairment and functional disability influenced long-term overall health evaluation by survivors of intracerebral and intraventricular hemorrhage (ICH/IVH). Methods: We pooled data from MISTIE-III and CLEAR-III trials. ICH/IVH survivors performed a protocolized direct valuation of their overall health using time trade-off utility (TTO-U) at 6 months post-ictus. TTO-U asks responders to consider trading years off their current disability-stricken state in exchange for perfect health. TTO-U index ranges from 0-1, with lower scores indicating greater years traded off and poorer valuation of overall health. TTO-U scores were dichotomized as good (>=0.7) and poor (<0.7). Associations between functional outcomes, European quality of life 5 dimensions (EQ-5D) and poor TTO-U at 6-months were assessed in multivariable logistic regression. A mediation analysis evaluated if mobility impairment and persistent poor mRS (mRS4-5) mediated associations between significant covariates and poor TTO-U at 6-months. Results: Of 773 survivors at 6-months, 442 (57%) patients with median (IQR) mRS of 3 (3-4) reported median (IQR) TTO-U of 1 (0.7-1); 332 patients had good and 110 had poor TTO-U. In multivariable logistic regression, moderate to severe anxiety/depression and problems with selfcare (dressing/washing) were independently associated with poor valuation of overall health, but mobility impairment and poor functional outcome were not. In mediation analyses, mobility impairment and poor mRS (4-5) at 6-months did not mediate the effect of persistent anxiety/depression (controlled direct effect (CDE), 1.79 [1.10-2.89]; natural indirect effect (NIE) of mobility, 0.93 [0.58-1.49], p=0.75; NIE of mRS, 1.00 [0.91-1.10], p=0.96) and selfcare deficits (CDE, 4.85 [2.13-11.05]; NIE of mobility, 0.72 [0.42-1.26]; NIE of mRS, 1.04 [0.78-1.39]) on long-term valuation of health state. Conclusions: Long-term valuation of overall health in survivors after severe ICH/IVH was influenced by persistent dependence in caring for self and mood dysfunction. Mobility impairment and mRS did not mediate these associations.

Tapping into long term value: a comprehensive overview of BIST 30 index companies future potential

Purpose - This article aims to establish a correlation between the valuation potential of companies listed on the Borsa Istanbul 30 index and their enduring competitive advantage, focusing on microeconomic Key Performance Indicators (KPIs) and corporate governance dimensions. Methodology - The study conducted an extensive analysis of the financial statements of BIST 30 companies spanning three years. Employing a unique approach utilizing Triangular Spherical Fuzzy Sets, it assessed the significance of these KPIs and corporate dimensions, chosen for their capacity to handle imprecise data. Three experts were consulted over three years to assign importance scores to each indicator, which were then used to calculate cumulative scores for individual stocks. Findings - The application of the Triangular Spherical Fuzzy Sets method provided a comprehensive understanding of these indicators, ena-bling a nuanced evaluation of the cumulative score for each stock. Notably, a clear distinction emerged between service and manufacturing companies, suggesting a potential glass ceiling effect that favors production-oriented enterprises. The observed patterns in certain stocks aligned with the framework developed in this study. Conclusion - This study illustrates the use of fuzzy logic in evaluating stock valuation potential, revealing insights into their sustained growth prospects. Aligned with Warren Buffett's value investing principles, it advances modeling approaches within the Turkish public stock exchange. Offering a unique perspective on BIST 30 stocks' long-term valuation potential, it provides valuable insights for investors, stakeholders, and analysts in the dynamic finance landscape. Emphasizing the understanding of companies' enduring competitive strength in an evolving market is pivotal. Keywords: Value investing, triangular spherical fuzzy sets, long term competitive advantage, corporate governance.

Real options analysis for valuation of climate adaptation pathways with application to transit infrastructure.

Climate change and sea-level rise (SLR) are expected to increase the frequency and intensity of coastal flood events, posing risks to coastal communities and infrastructure. While regional climate adaptation investments can provide substantive flood protection, existing plans often neglect uncertainty in future climate conditions and adaptation performance, consequently neglecting the option value of flexibly implementing proposed projects. Addressing this gap, we develop and employ a generalizable real options analysis (ROA) valuation framework that considers how uncertainty in adaptation project costs, SLR, flood severity, and flood losses inform the full range of adaptation performance outcomes. We further propose and apply a novel, computationally efficient flood loss sampling algorithm to estimate the consequences of randomly arriving coastal flood events. We apply this ROA framework to assess the option value of flexibly timing adaptation investments over time, investigating an adaptation pathway proposed by the City of Boston from the perspective of the regional transit system manager. Our results suggest that flexible implementation can provide significant option value in the near- to mid-term (>30 years), with the highest option values under low-probability, high-consequence scenarios. Our results also suggest adaptation pathway performance in the latter half of the 21st century is most sensitive to uncertainty in SLR, flood loss estimates, and flood frequency, underscoring the importance of uncertainty quantification in the long-term valuation of adaptation investments.

Explaining human interactions on the road by large-scale integration of computational psychological theory.

When humans share space in road traffic, as drivers or as vulnerable road users, they draw on their full range of communicative and interactive capabilities. Much remains unknown about these behaviors, but they need to be captured in models if automated vehicles are to coexist successfully with human road users. Empirical studies of human road user behavior implicate a large number of underlying cognitive mechanisms, which taken together are well beyond the scope of existing computational models. Here, we note that for all of these putative mechanisms, computational theories exist in different subdisciplines of psychology, for more constrained tasks. We demonstrate how these separate theories can be generalized from abstract laboratory paradigms and integrated into a computational framework for modeling human road user interaction, combining Bayesian perception, a theory of mind regarding others' intentions, behavioral game theory, long-term valuation of action alternatives, and evidence accumulation decision-making. We show that a model with these assumptions-but not simpler versions of the same model-can account for a number of previously unexplained phenomena in naturalistic driver-pedestrian road-crossing interactions, and successfully predicts interaction outcomes in an unseen data set. Our modeling results contribute to demonstrating the real-world value of the theories from which we draw, and address calls in psychology for cumulative theory-building, presenting human road use as a suitable setting for work of this nature. Our findings also underscore the formidable complexity of human interaction in road traffic, with strong implications for the requirements to set on development and testing of vehicle automation.

The effect of political influence on corporate valuation: Evidence from party-building reform in China

The party-building reform in China aims to strengthen the party-state control of firms by formalizing the Chinese Communist Party’s (CCP) role in corporate charters. We employ the reform as an exogenous shock to examine the effect of political influence on corporate valuation in the state-dominated economy. We first develop a hazard model of firms’ responses to the reform and use the predicted hazard rate as a proxy for a firm’s ex ante political influence. We find a positive correlation between firm valuation changes and the predicted hazard rate in the events of party-building reform announcements and a consistent long-term valuation effect based on the difference-in-differences analyses. We also find that the market reacts negatively when firms elect to adopt charter provisions that allow the CCP to control their personnel decisions. Together, our results are consistent with the hypothesis that the effect of party-building reform on a firm’s valuation depends on the trade-off between the benefits from the increased state capture and the costs of state influence in firm governance and that the enhanced political control costs are mitigated for firms with stronger existing political ties. This paper contributes to the literature by introducing a novel and integrated approach to measuring political influence that goes beyond the traditional state ownership measurement and by identifying ex ante political influence as an important factor in corporate valuation.

Agricultural resource and risk management with multiperiod stochastics: A case of the mixed crop-livestock production system in the drylands of Jordan

Generally, agricultural production involves several challenges. In the drylands, it is further complicated by weather-related risks and resource degradation. In this paper, we present a case study of the mixed crop-livestock production system in Jordan. To better capture the nature of response farming in the drylands, we develop a methodology for using crop simulation models to directly generate data for optimizing production practices of an integrated crop-livestock producing household in a dynamic stochastic context. The approach optimizes producer’s adaptations to random events, such as weather, which are realized throughout the planning horizon. To ensure the sustainability of the optimized production decisions, long-term valuations of end of horizon soil attributes are included in the objective function. This approach endogenizes the tradeoff between short-and long-run productivity. Model results show that due to the limited natural resource endowments and financial liquidity constraints of the typical farm households in the study area, we find these households have limited options. To optimally respond to weather conditions during the production season, better manage risk, and achieve improvements in soil attributes, a typical household would need larger farm size, larger flock, and better financial liquidity than it currently commands. Like all such models, the farm household model used in this paper is not suitable for drawing policy implications. Therefore, targeted analysis using appropriate sectoral or economy-wide models will be needed in the future to identify and test the efficacy of different policy and institutional interventions including land consolidation, establishment of producer and marketing cooperatives, access to financial services including agricultural credit, and crop insurance in expanding the resource base of farmers—thereby positioning them for higher earnings, ensuring soil conservation, and enhancing the sustainability of the production system.

Modelling sustainable rents for estimation of long-term or fundamental values of commercial real estate

ABSTRACT Commercial real estate occupier markets are analysed in the context of the debate over the role of real estate lending in financial stability and the search for long-term valuation methods to complement market value estimations. Models of sustainable rent, including a long-term trend model and an econometric equilibrium rent model, are tested to examine whether they provide early warning of upcoming corrections in real rental values. Models were estimated using rental value data for the UK and predictions of corrections from the mid-1980s through to 2018/9 and were then compared against actual real rental growth. The models were successful in identifying the occupier market crash of the 1990s and the more muted downturn of the early 2000s, but were less successful at predicting the falls in real rental value that followed the GFC in 2008/9. There is a late reaction to this downturn in estimates from the econometric model, while other approaches struggled to identify it at all. Econometric modelling of sustainable rental values is the recommended approach and could be used in conjunction with a model of sustainable cap rates to develop long-term valuations. This would aid lending decisions and provide evidence for regulators of cyclical movements in CRE markets. For the UK, there are data issues related to this recommendation, especially concerning stock data.

Post-NPM gender accounting—can public value management enhance gender mainstreaming?

IMPACT The authors suggest that the governance of public value will contribute to highlighting important qualitative aspects necessary for the successful implementation of gender mainstreaming. The success of work with the strategy of gender equality is dependent on which management accounting system that is in use. A good example is to use gender-awareness as an input and to go beyond short-term assessment of output into long-term valuation of outcomes. To avoid ending up with irrelevant output measures, gender-aware planning and assessment of qualitative processes and outcomes is required. ABSTRACT Gender mainstreaming has been hampered by the governance guides of New Public Management (NPM). Public Value Management is an alternative approach that can be interpreted as a concept for management accounting that meets the challenges that NPM was never able to handle. This paper discusses the case of gender mainstreaming in the Swedish transport sector.

Unraveling the Relationship between ESG and Corporate Financial Performance - Logistic Regression Model with Evidence from China

With growing awareness of sustainability, the field of Environmental, Social and Governance (ESG), has been attracting mainstream investors and researchers. Many previous studies have found inconclusive or mixed results on the relationship between ESG ratings and firms’ financial performance, which are mainly attributed to their varied markets, time horizons, and sources of ESG rating. Based on evidence from an emerging market, namely China, this paper examines whether ESG is an adequate indicator for firms’ future financial performance. Given the divergence in ESG rating methodologies, we use ESG data from two ESG rating agencies, one based in China (SynTao) and the other based in Switzerland (RepRisk), for robustness. Specifically, we investigate 377 China A-share companies covered by both agencies and find that ESG rating, albeit divergent due to disparate methodologies, is instrumental in predicting the trend of corporate financial performance (CFP). This work verifies that the forward-looking nature of ESG makes it crucial for firms’ long-term valuation and financial performance in emerging markets. Throughout the research, we observe four issues in the current ESG rating process: the opacity and inaccessibility of source data, the obscurity of ESG rating methodologies adopted by rating agencies, the lack of automated pipeline, and the unannounced historical data rewriting. We believe that the public blockchain ecosystem is promising to address these issues, and we propose future research on the ESG framework for blockchain to call for sustainability focus on this emerging technology.

Integrated management of coastal zones linked to tourism in small islands of Ecuador and Cuba

This paper establishes a conceptual model about the integrated management of coastal zones linked to land use planning. The components of the environmental management model were formulated based on two different case studies concerning evidence of environmental impacts. The proposed model can contribute to preserving the natural heritage, and savings in materials, labor, energy, and time, by focusing on the problem in advance and estimating the environmental costs for long-term valuations used for feasibility studies.

The host-market valuation effect of foreign company cross-listings — the case of the Hong Kong market

This paper studies the valuation effect of time-varying and the difference between different markets of overseas companies cross-listing on the host market. Using the data of the Hong Kong market from 1991 to 2018, we adopt the event study method and multiple regression model to analyse the short- and long-term valuation effect, respectively. Furthermore, two-stage least squares (2SLS) regression are utilized to address the endogeneity. We find that the valuation of foreign company listings on the host market change with the duration and have a significant short-term positive spillover effect. However, the long-term spillover effect is related to the company’s home market. This study provides new insights into foreign cross-listing company valuation, offering a few implications for the establishment of a Chinese International Board.

Using networks and partial differential equations to forecast bitcoin price movement.

Over the past decade, the blockchain technology and its bitcoin cryptocurrency have received considerable attention. Bitcoin has experienced significant price swings in daily and long-term valuations. In this paper, we propose a partial differential equation (PDE) model on the bitcoin transaction network for forecasting the bitcoin price movement. Through analysis of bitcoin subgraphs or chainlets, the PDE model captures the influence of transaction patterns on the bitcoin price over time and combines the effect of all chainlet clusters. In addition, Google Trends index is incorporated to the PDE model to reflect the effect of the bitcoin market sentiment. The experiment results demonstrate that the PDE model is capable of forecasting the bitcoin price movement. The paper is the first attempt to apply a PDE model to the bitcoin transaction network for forecasting.

Using CAPE to Forecast Country Returns for Designing an International Country Rotation Portfolio

The cyclically adjusted price-to-earnings ratio (CAPE), though originally derived for the US equity market, has now been calculated for various national equity markets outside the United States. In all its various adaptations, the measure has been used only to express valuations of those markets in terms of being overvalued, undervalued, or fairly valued. None of the adaptations of the measure have been used to derive finite equity return expectations from those markets. This article explores the approach of applying CAPE to develop a computable forecast measure, called the medium-term country yield forecast (CY-M), to express the medium-term real return expectations of national equity markets. In almost all of its past adaptations, CAPE has mostly been used to express only long-term (periods greater than 10 years) valuations of the equity markets, but the author here has explored its application in the medium term (periods between 2 and 10 years). Drawing conclusions from empirical studies on countries in the MSCI All Countries World Index ex. USA (ACWX) for the period 1969 through 2016, the author has amended the CAPE of a national equity market by coalescing it with the cyclically adjusted real exchange rate (computed in the same manner as CAPE) of the country and the long-term price return momentum (adjusted for inflation) of the market. The author also has applied CY-M derived from the adapted CAPE as a comparative measure to screen and rank countries in the ACWX to construct an international country rotation equity portfolio. TOPICS:Portfolio theory, portfolio construction, equity portfolio management, international investing Key Findings • The article illustrates how to adapt CAPE (also known as Shiller’s PE), a popular long-term US equity valuation measure, to be an equally proficient medium-term valuation measure for countries outside the United States. • It elucidates further a mechanism of applying the modified CAPE of a country to frame its medium-term return expectations. • The article also demonstrates how to rank countries based on their medium-term return expectations to construct a country rotation international equity portfolio.

Economic valuation of ecosystem-based rockfall risk reduction considering disturbances and comparison to structural measures

Forests provide a series of ecosystem services, including the protection from natural hazards. Thanks to these forests, structural protection measures can be avoided in many places. A realistic long-term valuation of this ecosystem-based risk reduction provided by the forest is essential. The aim of this study is to assess the Net Present Value (NPV) of a protection forest using a risk-based approach and compare it to the NPV of rockfall nets. Costs to be included in the NPV calculation are forest management interventions, net construction, and benefits are the risk reduction and wood sales. The risk reduction is monetised as avoided costs, i.e. the difference between the yearly rockfall risk with and without measure. Uncertainties in the protection effect due to possible forest fires were simulated over a period of 100years using a Monte-Carlo approach. Both the protection forest and the nets effectively reduce rockfall risk at the study site. The NPV of the nets is highly negative (−124,100 CHF/ha), indicating that they are economically not worthwhile at the study site. The NPV of the protection forest is highly positive (162,400 CHF/ha). The variation of the NPV due to fires is very low and the influence of this disturbance on the long-term efficiency of the protection forest is small. Building temporary nets in case of a large fire can restore the protective effect. Their NPV is, however, lower compared to the situation without net. By calculating the NPV of a forest considering its risk reducing effect, we provide a methodology for a realistic valuation of its protective effect. It is based on a case study, which, however, can be applied in a broader context. The presented approach can serve as basis to find optimal combinations of investment in natural hazard prevention, be this ecosystem-based or structural measures.

Market Responses to Private and Public Targets: The Role of Goodwill Valuation

Mergers and acquisitions (M&As) are an important aspect of corporate finance. To better understand the factors affecting market reactions to M&As, we examine market responses to M&As with private and public targets both at the time of announcement and after completion. Using a sample of over 1,500 M&As completed from 2002 to 2016, we find that investors tend to overprice the value of intangible assets acquired from a private target at the time of an M&A announcement but that the overpricing of goodwill is subsequently corrected in the years following the deal’s completion. We show that investors predict the decreasing value of goodwill and can promptly and efficiently adjust its pricing regardless of whether the impairments have been delayed, indicating that investors believe that acquired goodwill deteriorates regardless of goodwill impairment. We also provide evidence that Statement of Financial Accounting Standards (SFAS) 141(R) increases investors’ long-term valuations of other acquired intangible assets but negatively impacts goodwill’s market valuation after an acquisition. Our findings may be useful to the accounting standards setters in improving reporting guidelines related to goodwill and other intangible assets.