question about quarters
(Orangutan, 273
Points)
on 8/5/12 at 1:22am
I had 2 quick questions about updating earnings models.
1. Typically what does "updating an earnings model" entail? Is it simply adding the quarterly results into the financial statements?
2. Say I was trying to build a model and eventually pitch a stock for it. How do I account for a recent earnings report? For example, how do I calculate multiples like EV/EBITDA or even EV when all I have is the last year and 2 quarters into the next year? Do I project for the rest of the year?
Thanks so much... really would appreciate the help..
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Flake: Oh gawd. sorry.. i'm
Oh gawd.
sorry.. i'm quite new to this..
am I understanding something incorrectly?
When putting a DCF together,
When putting a DCF together, you should project out 5 years of Sales, Gross Profit, EBITDA, EBIT, and EBIAT to calculate the unlevered FCF and PV of the FCF. The whole purpose of projecting earning this far into the future is to determine whether or not the equity is trading at a discount. You can't exactly determine if an equity is cheap if you just look at Q2 earning vs. Q1, PEG ratio, etc.
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BTbanker: When putting a DCF
When putting a DCF together, you should project out 5 years of Sales, Gross Profit, EBITDA, EBIT, and EBIAT to calculate the unlevered FCF and PV of the FCF. The whole purpose of projecting earning this far into the future is to determine whether or not the equity is trading at a discount. You can't exactly determine if an equity is cheap if you just look at Q2 earning vs. Q1, PEG ratio, etc.
Yes I understand that you should project out 5 years, but say I have the past 3 years of historical data and the company just reported earnings for Q1. How do I integrate that into my model for an incomplete year? Do I use Q1 to project 3 quarters ahead and get a full year? Or do I disregard the earnings report until the year is complete?
erwannabe: BTbanker: When
When putting a DCF together, you should project out 5 years of Sales, Gross Profit, EBITDA, EBIT, and EBIAT to calculate the unlevered FCF and PV of the FCF. The whole purpose of projecting earning this far into the future is to determine whether or not the equity is trading at a discount. You can't exactly determine if an equity is cheap if you just look at Q2 earning vs. Q1, PEG ratio, etc.
Yes I understand that you should project out 5 years, but say I have the past 3 years of historical data and the company just reported earnings for Q1. How do I integrate that into my model for an incomplete year? Do I use Q1 to project 3 quarters ahead and get a full year? Or do I disregard the earnings report until the year is complete?
Haha, yeah only use the full year data, and you can't project 3 quarters ahead based on Q1. So, since your company filed for an IPO just 3 years ago, you don't need add each quarter until you reach 5. Just project with what you have with the latest 10-K form.
"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan
BTbanker: erwannabe: BTba
When putting a DCF together, you should project out 5 years of Sales, Gross Profit, EBITDA, EBIT, and EBIAT to calculate the unlevered FCF and PV of the FCF. The whole purpose of projecting earning this far into the future is to determine whether or not the equity is trading at a discount. You can't exactly determine if an equity is cheap if you just look at Q2 earning vs. Q1, PEG ratio, etc.
Yes I understand that you should project out 5 years, but say I have the past 3 years of historical data and the company just reported earnings for Q1. How do I integrate that into my model for an incomplete year? Do I use Q1 to project 3 quarters ahead and get a full year? Or do I disregard the earnings report until the year is complete?
Haha, yeah only use the full year data, and you can't project 3 quarters ahead based on Q1. So, since your company filed for an IPO just 3 years ago, you don't need add each quarter until you reach 5. Just project with what you have with the latest 10-K form.
Ah! Very very helpful. That clears so much up haha! But what about huge misses on earnings estimates. For example, Zynga has been making headlines for its terribly low earnings this quarter.. That doesn't factor into a price target? I went to my school to access some equity research reports and some banks have already come up with price target updates for Zynga based on a single Q2.. How do they do that?
erwannabe: BTbanker: erwa
When putting a DCF together, you should project out 5 years of Sales, Gross Profit, EBITDA, EBIT, and EBIAT to calculate the unlevered FCF and PV of the FCF. The whole purpose of projecting earning this far into the future is to determine whether or not the equity is trading at a discount. You can't exactly determine if an equity is cheap if you just look at Q2 earning vs. Q1, PEG ratio, etc.
Yes I understand that you should project out 5 years, but say I have the past 3 years of historical data and the company just reported earnings for Q1. How do I integrate that into my model for an incomplete year? Do I use Q1 to project 3 quarters ahead and get a full year? Or do I disregard the earnings report until the year is complete?
Haha, yeah only use the full year data, and you can't project 3 quarters ahead based on Q1. So, since your company filed for an IPO just 3 years ago, you don't need add each quarter until you reach 5. Just project with what you have with the latest 10-K form.
Ah! Very very helpful. That clears so much up haha! But what about huge misses on earnings estimates. For example, Zynga has been making headlines for its terribly low earnings this quarter.. That doesn't factor into a price target? I went to my school to access some equity research reports and some banks have already come up with price target updates for Zynga based on a single Q2.. How do they do that?
Zynga is a very young company, and the first price targets were based on nothing more than initial valuation what people were willing to pay (Which could be WAY off with tech companies). Just look at Facebook. They have a price target of ~$35, which will continue to fall as earnings and management continue to disappoint. After a few years, however, single quarter earnings announcements will have a smaller affect on PT, but I would take them with a grain of salt, since nobody really knows where a stock price is headed.
"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan
BTbanker: erwannabe: BTba
When putting a DCF together, you should project out 5 years of Sales, Gross Profit, EBITDA, EBIT, and EBIAT to calculate the unlevered FCF and PV of the FCF. The whole purpose of projecting earning this far into the future is to determine whether or not the equity is trading at a discount. You can't exactly determine if an equity is cheap if you just look at Q2 earning vs. Q1, PEG ratio, etc.
Yes I understand that you should project out 5 years, but say I have the past 3 years of historical data and the company just reported earnings for Q1. How do I integrate that into my model for an incomplete year? Do I use Q1 to project 3 quarters ahead and get a full year? Or do I disregard the earnings report until the year is complete?
Haha, yeah only use the full year data, and you can't project 3 quarters ahead based on Q1. So, since your company filed for an IPO just 3 years ago, you don't need add each quarter until you reach 5. Just project with what you have with the latest 10-K form.
Ah! Very very helpful. That clears so much up haha! But what about huge misses on earnings estimates. For example, Zynga has been making headlines for its terribly low earnings this quarter.. That doesn't factor into a price target? I went to my school to access some equity research reports and some banks have already come up with price target updates for Zynga based on a single Q2.. How do they do that?
Zynga is a very young company, and the first price targets were based on nothing more than initial valuation what people were willing to pay (Which could be WAY off with tech companies). Just look at Facebook. They have a price target of ~$35, which will continue to fall as earnings and management continue to disappoint. After a few years, however, single quarter earnings announcements will have a smaller affect on PT, but I would take them with a grain of salt, since nobody really knows where a stock price is headed.
Thanks! Extremely helpful! 1 silver banana is not enough for you...