Estimation of the Market Value Probability Distribution of a Company in the Apparel Industry

Yulu Han

Diplomová práce

Anotace:

Nike is an American famous sports brand in the world, the company provides many types of sports products including clothes, shoes, sports equipments and so on. Because there are much competition in the apparel industry market in the recent years, the company of Nike wants to get higher profitability which becomes harder. Therefore it shows the importance of estimating the market value probability distribution of Nike under risk. So we select the data of the last fifteen years from 2005 to 2019. After going through a series of process of valuation, we will know more financial conditions of the company, and also can help the company and investors to get more information and decision of the development situation. There are five chapters in the thesis. In the first chapter, it is a brief introduction about the whole thesis. The goal of writing the thesis is to valuate the Nike company, we will estimate the probability distribution of entity and equity value under risk of the company in the future by using two-stage discount cash flow method. In the second chapter, we will show the methodology of valuation process. It is about theory knowledge, the formulas will be introduced to analyze financial data. We will introduce many types of analyzsis methods, we will show income approach, financial analysis, common-size analysis, ratio analysis, and we also will use the Monte Carlo simulation to simulate the risks, we will use two approaches of Brownian motion in the stochastic process. Then we will use two-stage discount cash flow method to help us to make the financial plan and estimate cost of capital. And we also will introduce the methodology of the sensitivity analysis. In the third chapter, we will introduce Nike company including the basic business information, histroy and the business strategies. And then we will use SWOT analysis to know about the market condition in the industry. Besides, we will have common-size analysis and financial ratio analysis of the company based on the financial data in the recent years. We also will analyze the pyramidal decomposition of return on invested capital, show the value of ratio indicators for the competitors in the apparel industry. It is also important to calculate the market share in the industry. Besides, we will use Z-score model to calculate the bankruptcy. The fourth chapter is the most important part, we will estimate the market value probability distribution of Nike company by using the theory from chapter two. So we choose the past fifteen years data from 2005 to 2019 in the valuation process. We will use Monte Carlo simulation to simulate the evolution of sales revenue in the following five years, we will have 10,000 scenarios in the procedure. And two approaches will be used in the stochastic process which are arithmetic Brownian motion and geometric Brownian motion, we will also compare the results between them. The financial plan include the plan of EBIT, plan of net working capital, plan of depreciation, plan of tax rate and plan of debt. Then we will have financial plan to estimate the free cash flow to the firm (FCFF) and free cash flow to equity (FCFE) in the following five years by using two-stage DCF method. And sensitivity analysis will show the sensitivity of valuation when the growth rate of FCFF will change.

Abstract:

Nike is an American famous sports brand in the world, the company provides many types of sports products including clothes, shoes, sports equipments and so on. Because there are much competition in the apparel industry market in the recent years, the company of Nike wants to get higher profitability which becomes harder. Therefore it shows the importance of estimating the market value probability distribution of Nike under risk. So we select the data of the last fifteen years from 2005 to 2019. After going through a series of process of valuation, we will know more financial conditions of the company, and also can help the company and investors to get more information and decision of the development situation. There are five chapters in the thesis. In the first chapter, it is a brief introduction about the whole thesis. The goal of writing the thesis is to valuate the Nike company, we will estimate the probability distribution of entity and equity value under risk of the company in the future by using two-stage discount cash flow method. In the second chapter, we will show the methodology of valuation process. It is about theory knowledge, the formulas will be introduced to analyze financial data. We will introduce many types of analyzsis methods, we will show income approach, financial analysis, common-size analysis, ratio analysis, and we also will use the Monte Carlo simulation to simulate the risks, we will use two approaches of Brownian motion in the stochastic process. Then we will use two-stage discount cash flow method to help us to make the financial plan and estimate cost of capital. And we also will introduce the methodology of the sensitivity analysis. In the third chapter, we will introduce Nike company including the basic business information, histroy and the business strategies. And then we will use SWOT analysis to know about the market condition in the industry. Besides, we will have common-size analysis and financial ratio analysis of the company based on the financial data in the recent years. We also will analyze the pyramidal decomposition of return on invested capital, show the value of ratio indicators for the competitors in the apparel industry. It is also important to calculate the market share in the industry. Besides, we will use Z-score model to calculate the bankruptcy. The fourth chapter is the most important part, we will estimate the market value probability distribution of Nike company by using the theory from chapter two. So we choose the past fifteen years data from 2005 to 2019 in the valuation process. We will use Monte Carlo simulation to simulate the evolution of sales revenue in the following five years, we will have 10,000 scenarios in the procedure. And two approaches will be used in the stochastic process which are arithmetic Brownian motion and geometric Brownian motion, we will also compare the results between them. The financial plan include the plan of EBIT, plan of net working capital, plan of depreciation, plan of tax rate and plan of debt. Then we will have financial plan to estimate the free cash flow to the firm (FCFF) and free cash flow to equity (FCFE) in the following five years by using two-stage DCF method. And sensitivity analysis will show the sensitivity of valuation when the growth rate of FCFF will change.

Klíčová slova

probability distribution, Arithmetic Brownian motion, Geometric Brownian motion, Monte Carlo simulation, financial plan, financial analysis, sensitivity analysis, Z-score, industry analysis

Keywords

probability distribution, Arithmetic Brownian motion, Geometric Brownian motion, Monte Carlo simulation, financial plan, financial analysis, sensitivity analysis, Z-score, industry analysis

Jazyk práce: angličtina

Datum vytvoření / odevzdání či podání práce: 23. 4. 2021

Obhajoba závěrečné práce

• Obhajoba proběhla 24. 5. 2021
• Vedoucí: Petr Gurný
• Oponent: Miroslav Čulík

VŠB – Technická univerzita Ostrava

Ekonomická fakulta

Magisterský studijní program:
Finance