Bloomberg User Manual

Second edition 2018

Faculty of Business and Economics
The University of Hong Kong

Chapter 4
Corporate Finance Issues

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong

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Chapter 4 Corporate Finance Issues
Overview
In this chapter, we will continue to introduce how to utilize Bloomberg to perform stock analysis
with a focus on corporate finance following the fundamental analysis in Chapter 3. We will
introduce some tools to obtain corporate information including issuer and holding information,
corporate governance and management profile, as well as business segmentation and supply
chain; followed by corporate actions such as dividend policies and M&A. We will also introduce
functions for capital structure and equity valuation in the last section.

4.1 Corporate Information

In this section, we are going to focus on the basic corporate information to gain insight into
company business structure. First of all, we will introduce issuer and holding information,
followed by corporate governance, social responsibility and management profile of a company.
Lastly, we will delve into business segmentation and supply chain of a company to understand
where the company’s revenue is generated and its relationship with suppliers and customers.
Therefore, the majority of the functions are ticker specific and you will be required to load a
company ticker first. The functions that will be introduced are as follows:

Function Code Function Name

DES<GO> Description
RELS<GO> Related Securities
HDS<GO> Holdings
MGMT<GO> Company Management Profiles
FA ESG<GO> Environmental, Social and Governance Analysis
CCB<GO> Company Classification Browser
ICB<GO> Industry Classification Browser
PGEO<GO> Product and Geographic Segmentation
BI PHRM RX<GO> Large Pharma Data Library
SPLC<GO> Supply Chain Analysis

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 2
4.1.1 Issuer and Holding Information
DES<GO>: we have introduced this function in Chapter 3 with a focus on company profile such
as trading and fundamental data. In addition, its 2) Issue Info tab also briefly provides the issuer
and holding information: 6) Public Offerings (CACS) at the top summarizes the IPO and
additional offerings in history. 12) Top Holders (HDS) at the bottom right displays the top
holders of the company. You can click the grey title bars to access the different functions for
details and we will introduce these functions in detail later in this chapter.

Click each title to

access different
functions for
different
information

Figure 4.1 the Issue Info tab in DES<GO>

RELS<GO>, Related Securities, provides a comprehensive overview of issuer information

including links to parent companies and subsidiaries, brand names, as well as equities and debts
issued.

The middle part of the page shows the organizational structure such as major subsidiaries and
parent company if applicable as well as additional company information such as brands and
company website link.

The right hand side of the page displays all types of equities, debts, and other products such as
warrants, options and futures issued by the company.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 3
 The number next
to it means the
matched numbers
for the category.
Click it to see the
brands owned by
the company
(equivalent to
BRND<GO>)

Figure 4.2 Related Securities: RELS<GO>

HDS<GO> provides a very comprehensive analysis of the holding information of a company,

including institutional and insider holders, peer group holding matrix, ownership breakdown and
insider transaction, so that you can identify the controlling party of the company and analyze the
holding trends of large holders whose trading activities may influence the security price.

The page displays the holding information in different tabs at the top. 1) Current lists all the
current holders with portfolio name, source, amount held and etc. to give you a very clear picture
of who holds the company. You can further filter the results from the Source column.

Figure 4.3.1 the Current tab in HDS<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 4
 The 2) Historical tab has a very similar display with the 1) Current tab but shows the historical
holdings of the holders so that you can view the change of amount held by the funds and insiders
to get an idea of the stock performance trend.

The 3) Matrix tab provides the holding information of Tsingtao’s peers in a matrix. In addition to
holding the shares of Tsingtao, fund managers may also hold the shares of its peers at the same
time. For example, in Figure 4.3.2, you can see that Vanguard currently holds almost 12 million
shares of Tsingtao. While at the same time, it also holds the shares of Kweichow Moutai and
Heineken. From such matrix, you can clearly see the fund manager’s view on the company and
its peers as well as the sector especially when you change the Display to Latest Change or
Percentage Change.

Change the source

of peers to the same
sector, subsector or
even custom source
such as EQS screen
Change the
display to
percentage
Change the holder
outstanding,
group to top buyers,
latest change
sellers and etc.
and etc.

Figure 4.3.2 the Matrix tab in HDS<GO>

The 4) Ownership Summary tab displays the ownership breakdown such as top geographic
ownership and top ownership type. It gives you an idea of what regions and what groups of
investors hold the company. For example, in Figure 4.3.3, we can see that the United States is the
region that holds the most shares of Tsingtao. It also shows that investment advisor is the
investor type that controls the most shares of Tsingtao. You can also compare the current
ownership with a historical date to view the trend.

The 5) Insider Transactions tab provides the insider transactions in history together with the
historical price graph to illustrate how it could affect the share price. It uses green and red icons
(indicating buy and sell respectively) on the graph to represent the transaction at that time. You
can click the icon to view the details of the transaction (see Figure 4.3.4).

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 5
 Select a historical
date for
comparison to
Click to view the
view the trend
historical chart

Select the type

to display for
each box

Figure 4.3.3 the Ownership tab in HDS<GO>

Click to view the details

Figure 4.3.4 the Transactions tab in HDS<GO>

4.1.2 Management Profile and Corporate Governance

MGMT<GO>, Management Profiles, displays the information about the executives and board
members of a company. It helps you to understand the age profile of management (whether key
people are retiring soon), the management experience level, independence of BOD, and past
executives’ performance for comparison.

Let us use Alibaba Group as an example BABA US EQUITY MGMT<GO>. 81) Executives
and 82) Board list the current executives and board members with age and corresponding title.
Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 6
 Figure 4.4.1 the Summary tab in MGMT<GO>

The 84) Changes tab displays the management changes of key positions such as Chairman and
CEO. It also provides the total return of the stock during each one’s tenure.

Figure 4.4.2 the Changes tab in MGMT<GO>

To gain more information of executives and board members to see how experienced they are,
you can click his/her name, e.g. 1) Jack Yun Ma, the Chairman and founder of Alibaba. You will
see his biography page (equivalent to BIO Jack Yun Ma<GO>) with his contact information,
related news, career history, board/memberships and colleges.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 7
MGSN<GO>, Management Snapshot, is similar to the MGMT<GO> page but provides a quick
summary of management structure and management’s holdings together with a comparison with
two competitors.

Customize the
competitors as
you want

Figure 4.5 Management Snapshot: MGSN<GO>

FA ESG<GO> is a template in the FA<GO> page, which has been introduced in Chapter 3,
displaying the environmental, social and governance data of a company. Due to the emphasis of
CSR (corporate social responsibility) nowadays, ESG analysis becomes more popular recently.

Click to view the

data transparency

Figure 4.6 ESG template in FA<GO>: FA ESG<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 8
 4.1.3 Business Segmentation and Supply Chain
CCB<GO>, Company Classification Browser, enables you to look beyond traditional market
perception to determine revenue-derived industry classifications for a company based on its most
recent annual report.

By selecting BICS (Bloomberg Industry Classification System) as the classification at the top
left, you will see a sector hierarchy in which the company’s business is involved in, with revenue
generated in each sector or subsector. By selecting a sector from the hierarchy, the table at the
top right will display the aggregated statistics of this sector such as total market cap, P/E and
revenue. The table below shows its peers in the selected sector with their total revenue and
revenue generated from this sector. You can further filter the list by region and etc. from the
Filter By option.

Revenue percentage
breakdown in each
subsector

Click the BI icon

to access the
corresponding
sector dashboard
in BI

Figure 4.7 Company Classification Browser: CCB<GO>

You can also select other industry classifications such as GICS (Global Industry Classification
Standard) and ICB (Industry Classification Benchmark) to view the sector hierarchy of the
company, aggregated statistics of the sector and the company’s peers in the same sector.
However, the analysis is in the whole firm level only without the revenue breakdown in each
category.

ICB<GO>: if you would like to view the entire list of industry classification of different
benchmarks after having an idea of a company’s industry classification, you can run ICB<GO>,
Industry Classification Benchmark. It has a very similar layout with CCB<GO> but no company
ticker needed.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 9
Let us use GICS which was initiated by MSCI and S&P as an example. You can click the + icon
to see the lower granularities and click the sector name to display its aggregated statistics and
corresponding companies in two tables at the right. You see clearly how large the sector is and
largest companies by market cap or revenue in the sector.

The number of
companies in
each sector

Figure 4.8 Industry Classification Benchmark: ICB<GO>

PGEO<GO>, Product and Geographic Segmentation, is a template in FA<GO> that displays a

company’s sources of income from different products and geographic locations. For example,
AAPL US EQUITY PGEO<GO>, from the 11) By Measure tab, you can see that 61.6% of its
revenue was generated from iPhone in the fiscal year 2017. By clicking the 12) By Geography
tab, you are able to see the revenue (and other items) breakdown in geographic locations. This
page is helpful when you need to analyze the company’s profitability in product and geographic
levels to help you gain an insight into where the company’s exactly revenue comes from.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 10
Click to view
the breakdown
in bar chart

Figure 4.9 Product and Geographic Segmentation: PGEO<GO>

BI PHRM RX<GO> takes you to the Bloomberg Intelligence large pharmaceuticals dashboard.
Up-to-date weekly and monthly prescription and pipeline data, charts and analysis are listed here.
You can click on a drug name to know more on a specific drug’s information, or filter by typing
a company into the amber box.

Figure 4.10 BI PHRM RX<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 11
SPLC<GO>, Supply Chain, offers industry-leading insight into a company’s supply chain
including supplier, customer and peer relationship data. After knowing a company’s business
sector and source of income, you would also like to know who its major suppliers and customers
are and who has the bargaining power in company’s supply chain. This function allows you to
map a company to its customers, suppliers, and competitors, and therefore begin to measure and
analyze a company’s supply-chain health based on the wealth of financial data available in
Bloomberg.

Let us use Apple Inc. (Apple) as an example, AAPL US EQUITY SPLC<GO>. By clicking on
the amber box next to View, you can select to see either the suppliers, customers, or peers
relationships information with Apple.

It shows that Cowell e Holdings Inc’s 80.98% of revenue was from Apple while it only
contributed to Apple’s 0.40% COGS, as of August 11, 2018. You can see clearly how important
Apple is to this company and its business will be affected dramatically if Apple finds a
replacement in a cheaper market. You can also click any company name from the supplier,
customer and peer lists to access its supply chain page.

Sort the suppliers

and customers by
different exposures
or customize by
yourself

Figure 4.11 Apple Inc’s Supply Chain: SPLC<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 12
4.2 Corporate Actions
In this section, we will introduce the tools to view a company’s historical corporate actions (e.g.
dividends, M&A) and events (e.g. earning release) as well as monitor the upcoming ones. Then
we will delve into company’s dividend policy and credit risk. Lastly, we will introduce the
screening tools for IPO and M&A to search for deals that you are interested in. The functions
that will be introduced are as follows:

Function Code Function Name

CACS<GO> Company Corporate Actions Calendar
CACT<GO> Corporate Actions Calendar
EVT<GO> Company Events
EVTS<GO> Events Calendar
DVD<GO> Dividend Summary
BDVD<GO> Bloomberg Dividend Projections
DDM<GO> Dividend Discount Model
RSKC<GO> Company Risk Overview
CRPR<GO> Credit Rating Profile
DRSK<GO> Bloomberg Default Risk
MA<GO> Mergers & Acquisitions Search
IPO<GO> Equity Offerings Search
LEAG<GO> Underwriter League Table

4.2.1 Corporation Actions and Events Overview

CACS<GO>, Company Corporate Actions Calendar, displays a single company’s corporate

actions including dividend payout, share repurchase, stock splits, M&A, IPO and etc. You can
select the date range at the top and tick the most common corporate actions below such as
dividends, splits, M&A and etc. The table below will list the corresponding corporate actions.
You can click any one to view the details.

To view the corporate actions that you are interested in, you can customize by clicking 35)
Actions at the top right to select those from different categories. You can also export the
corporate actions to Excel by clicking 31) Actions and Output to Excel from the drop-down
menu.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 13
 Figure 4.12 Company Corporate Actions Calendar: CACS<GO>

CACT<GO>, Corporate Actions Calendar, is designed to display corporate actions for multiple
securities from a custom source. It has the same layout as CACS<GO> which displays corporate
actions for a single security. You can choose the source (e.g. equity index and equity screen) and
region from the top amber boxes. You may select 35) Action Types to customize the type of
corporate actions as you like.

Figure 4.13 Corporate Actions Calendar for Multiple Securities: CACT<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 14
EVT<GO>, Company Events, displays the company events such as earning releases, earning
calls and shareholder meetings of a single company. It allows you to view the historical events
with transcript or other related information and monitor the upcoming ones with alert
functionality and calendar synchronization. You can choose a date range on the left first and then
select the event types, e.g. Earnings Releases as shown in Figure 4.14. You can see the actual
EPS and estimates under description. You can click the event to see more details. For the
upcoming earning releases, you can also click the bell icon to set alert to remind yourself or the
icon next to it to sync calendar in Microsoft Outlook.

Click to sync
calendar in your
Outlook for the
Click to set alert coming events
for the coming
events

Choose the event

type here

Figure 4.14 Company Events: EVT<GO>

EVTS<GO>, Events Calendar, is similar to EVT<GO>, but displays events for multiple
companies. It has the same layout as EVT<GO> (see Figure 4.15).

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 15
 Figure 4.15 Events Calendar for Multiple Companies: EVTS<GO>

EVTS<GO> is mainly used for monitoring the upcoming company events. You can choose the
company base from the Source box such as EMS orders and equity screen or select the industry
under Sector to customize the companies that you are interested in. You may then select the date
range and event type as well as the daily or monthly view (monthly view gives you an overview
of the number and type of events each day within a month). You can set alert or sync calendar as
the same features in EVT<GO>.

4.2.2 Dividend Policy

After having an overview of all the company corporate actions and events and knowing the tools
to monitor them, we take a look at one of the most important corporate actions in a greater detail:
dividend.

DVD<GO>, Dividend Summary, displays the dividend/split history of a security so that you can
have a basic idea of a company’s dividend policy. The top left provides a summary including
dividend yield, growth and frequency. The top right illustrates the historical dividend and
dividend yield in graph. The table below shows the full history of all types of dividends within
the date range selected at the top left. You can filter the type such as cash dividend, stock
dividend and split from the Type box.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 16
 Select the date
range for
dividend history
shown below

Filter the dividend

type as you like:
cash, stock, split,
spin-off and etc.

Figure 4.16 Dividend Summary: DVD<GO>

BDVD<GO>, Bloomberg Dividend Projections, provides projected dividends of 7,500 securities

globally forecasted by Bloomberg analysts. According to the historical accuracy, Bloomberg
dividend projections consistently beat the analyst consensus, which you can find in EEB<GO>.
Therefore, you may use it as reference when you conduct research on dividend projection.

Let us use IBM US EQUITY BDVD<GO> as an example. It has a very similar layout as
DVD<GO>. The top left provides a summary of projected dividends and historical dividends as
well as dividend health derived from company fundamentals and credit rating. The graph at the
top right charts the historical and projected dividends or dividend yield together to illustrate the
trend. The table below displays the projected ex-date, Bloomberg forecast, dividend estimate
consensus by analysts and option implied range for comparison. You may click it to view the
details of the option implied range calculation.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 17
Range from -100 to
100 and determine
“Next Projected
Action”: click to see
detailed calculation
using company
fundamentals and
credit rating

Figure 4.17 Bloomberg Dividend Projection: BDVD<GO>

DDM<GO>, Dividend Discount Model, can be used for calculating the intrinsic value of a
selected equity using the present value of forecasted dividends at an appropriate rate. You can
compare this theoretical value to the current price of the equity to determine whether it is under-
or overvalued.

The function is based on a three-stage dividend discount model consisting of a growth, transition
and steady-state stage. You can customize the inputs at the top of the page such as projected
EPS/DPS, payout ratio and risk premium. Country risk premium and beta are used for
calculating a stock’s risk premium using CAPM and bond rate is used as a proxy for risk free
rate. We will explain it in detail in section 4.3.2 Regression and Valuation where more valuation
models will be introduced. For more information regarding the calculation, please hit the
<HELP> button once and select the section for calculations.

The table at the bottom displays the calculated theoretical price based on the assumption that you
input at the top, together with other important measures derived from the model such as internal
rate of return, expected return and implied growth rate (see Figure 4.18).

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 18
 Compare the theoretical
price and current price

Figure 4.18 Dividend Discount Model: DDM<GO>

4.2.3 Credit Risk Analysis

After reviewing a company’s dividend policy, we will take a look at its credit rating and
associated risks which may affect its corporate actions.

RSKC<GO>, Company Risk Overview, displays a snapshot of a company’s risk profile. The
grey title bars divide the page into several parts including the information of company
description, credit, credit profile, corporate governance, accounting, security ownership and
analyst recommendations. Such dataset gives you an overview of a company’s credit and
operating risks from different perspectives including some interesting data such as whether the
company experienced late filings or auditor change in the recent years. You can click the white
icon to view the data transparency.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 19
 Click to access
the DES<GO>
page

Click to view data

transparency

Figure 4.19 Company Risk Overview: RSKC<GO>

If you click 2) Credit Profile (CRPR) in the RSKC<GO> page (equivalent to CRPR<GO>),
you will see the company’s credit ratings by different rating agencies, e.g. Moody’s, Standard &
Poor’s and Fitch. Each agency also provides ratings in lower granularity such as long/short term,
local/foreign issuer and etc. You can click each item to see the historical ratings in different
colors representing up- or downgrade.

Figure 4.20 Credit Profile: CRPR<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 20
DRSK<GO>, Bloomberg Default Risk, analyzes the credit health of a company by estimating
the default probability over the next 12 months using Bloomberg’s proprietary model. The model
result (1-year default risk and likelihood) are determined by the model inputs that you can
customize from the table below. The chart at the right shows the historical price and 1-year
default risk and you can change to other indicators from the amber boxes.

Figure 4.21 Bloomberg Default Risk: DRSK<GO>

By clicking the 20) Sector Comparison (DRAM) tab in the page, you will be able to view all the
companies in a sector. You can select the default risk, likelihood and CDS ranges on the top right.
The chart under Likelihood Range illustrates clearly where the company is located among its
peers.

Figure 4.22 the Sector Comparison tab DRAM<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 21
4.2.4 M&A and IPO Search
Now you have a basic idea of the tools that can be used to analyze the corporate actions and
credit risk of a selected company, and we are going to introduce the screening tools to search for
M&A and IPO deals, as well as the underwriter rankings for these deals.

MA<GO>, Mergers & Acquisitions Search, facilitates you to search for M&A deals and monitor
proposed deals. The overview page after running MA<GO> displays the most recent deal list.
You can also view the largest deals selecting from the choices next to Sort by. If you want to
customize the deal status, region and industry, click on that particular criteria under each
breakdown respectively (see Figure 4.23.1). More importantly, if you would like to search for
deals that you are interested in, you may click 91) Advanced Search at the top.

In the 91) Advanced Search page, you will see a full list of search criteria (see Figure 4.23.2).
Let us use Chinese auto manufacturers acquiring peers in developed markets from 2008 to 2011
as an example. You may choose 11) Date Range and specify the start date and end date by
selecting Custom under the drop-down menu. 21) Sector/Industry allows you to select Auto
Manufacturers under Consumer Cyclical and you may keep the default to apply it to target,
acquirer and seller at the bottom as we are referring to the horizontal M&A. For the region
criteria, you may click 23) Region/Country to select China and tick Acquirer only at the bottom.
For companies in developed markets, you may need to click 23) Region/Country again and we
can use North America and Western Europe applying to target or seller as an example (see
Figure 4.23.2). Click the 1) Results button at the bottom to view the results.

Figure 4.23.1 Mergers & Acquisitions: MA<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 22
 Selected criteria for
the example

Figure 4.23.2 the Advanced Search page in MA<GO>

In the 1) Overview tab of the result page, you will see an overview of all the deals matching your
criteria, including number of deals and total deal value breakdown by industry and country (see
Figure 4.23.3).

To see the deal list, you can go to the 5) Deal List tab where all the deals are listed with columns
of different information and you can add column with data that you are interested in. 2) Deal
Breakdown provides a statistical summary of the deals including deal type, deal size, payment
type and etc.

Figure 4.23.3 the Overview tab in the MA<GO> result page

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 23
The 7) Time Series tab displays the deals by period in graph so that you can view the trends of
such deals over the time. You can choose monthly, quarterly or annually for the period and
volume, deal count or average premium for the deal data.

Figure 4.23.4 the Time Series tab in the MA<GO> result page

IPO<GO>, Equity Offerings Search, allows you to search and monitor the IPOs and additional
offerings by stage, size, industry sector, or region. In the overview page, you can quickly specify
the deal type, time period and currency at the top amber boxes to see the number of deals. For
custom search, you may click 95) Advanced Search at the top.

Visualize stock
performance since
the offering

Figure 4.24.1 Equity Offerings Search: IPO<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 24
The 95) Advanced Search page has a very similar layout as the 95) Advanced Search page in
MA<GO> (see Figure 4.24.2). There is a list of criteria by category at the left and selected
search criteria at the right. You may search the equity offering deals by date range, offer type,
offer size, performance, region, industry and etc. You can also go to 5) Sample Searches to view
the sample searches and let us take the example of offerings > US$ 1 billion from there to view
its result page.

The selected
criteria for the
sample of
offerings > US$ 1
billion YTD

Figure 4.24.2 the Custom Search page in IPO<GO>

After clicking the 1) Result button at the bottom, you will see the result page with a list of deals
under the 3) Deal List tab. You can also check other tabs for more information. The
functionalities of the different tabs are very similar to those in the result page of MA<GO>. For
example 5) Time Series displays the deals by period for trend analysis.

Figure 4.24.3 the Deal List tab in the result page of IPO<GO>
Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 25
LEAG<GO>, Underwriter League Table (underwriter rankings), ranks underwriters for different
markets such as bond and note, loan, equity and municipal to help you identify the leading
underwriters in different markets. You can see JP Morgan ranks No.1 by underwriting bonds and
notes, while Morgan Stanley ranks No.1 in the equity market.

Figure 4.25 Underwriter League Table: LEAG<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 26
4.3 Capital Structure and Valuation
In this section, we will delve into company’s capital structure and valuate its cost of capital and
debt distribution. We will also introduce tools for regression and simple valuation models such
as beta calculation, correlation and equity risk premium derived from CAPM. The functions that
will be introduced are as follows:

Function Code Function Name

CAST<GO> Capital Structure
WACC<GO> Weighted Average Cost of Capital
DDIS<GO> Debt Distribution
BETA<GO> Beta Calculations
HRA<GO> Historical Regression Analysis
EQRP<GO> Equity Risk Premium
CRP<GO> Country Risk Premium
CORR<GO> Correlation Matrix
PEBD<GO> Equity Relative Valuation: Price Bands

4.3.1 Capital Structure

CAST<GO>, Capital Structure, provides current and historical capital structure information of a
company (more specifically, a creditor) to help you understand the company’s debt issuance
details over the time.

The bar chart below illustrates the amount of debts by type with the market cap (equity) for
comparison and you can click it to view the full list of the corresponding loans/bonds. It helps
you to analyze the company’s debt and associated risks.

The graph at the top displays the corporate structure of the selected parent company and the
borrowing entities under it with the debt amount shown. Once you click an entity, the upper chart
changes to reflect the debt issuance of that entity.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 27
 Figure 4.26 Capital Structure: CAST<GO>

WACC<GO>, Weighted Average Cost of Capital, displays theoretical weighted average cost of
capital with custom calculation, capital structure pie chart and economic value added. It helps
you to identify a company’s theoretical cost of capital for valuation and related fundamental
measures such as EVA and ROIC.

The top left table summarizes the cost of equity, debt and preferred equity as well as WACC.
You can click each row to see how it is calculated. For example, cost of equity is calculated
based on CAPM and you can customize the inputs as you prefer (see Figure 4.27).

Figure 4.27.1 Weighted Average Cost of Capital: WACC<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 28
The top right box shows the capital structure in a pie chart and table with the amount of market
cap, short-term and long-term debts and preferred equities data. The bottom left chart displays
the historical WACC and other items such as ROIC for comparison. You can click 6) History to
view the historical WACC in table and graph format (see Figure 4.27.2). The bottom right table
shows the economic value added items and you can click it to view the calculation details.

Figure 4.27.2 Historical WACC in WACC<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 29
DDIS<GO>, Debt Distribution, displays the amount of debt that a company needs to repay in
each future period, which may affect the company’s cash flow and credit risk. At the right side of
the page, you can choose the plot lines and select for display settings and debt types. The table
on the left illustrates the corresponding amount of debt that the company needs to repay in each
period. Click on 9) Table tab to view it as a table version with amounts specifically stated.

Filter the debt type

for distribution
chart and table
from the amber
boxes, e.g. issuer
group, debt type,
coupon type and
payment type

Figure 4.28 Debt Distribution: DDIS<GO>

4.3.2 Regression and Valuation

BETA<GO>, Beta Calculations, displays the historical sensitivity of a selected equity compared
to a broad-based market index (beta) to help you determine the company’s risk level.

The amber boxes at the top allow you to customize the parameters used in the regression such as
relative index, date range, periodicity and currency (see Figure 4.29). You are able to lag the
variables if you want. Apart from the linear regression, the function also provides Beta +/- and
Non-Parametric, please refer to DOCS 2055468<GO> for the methodology if you are interested
in it.

The regression graph below clearly shows the relationship of the price percentage changes of
Wal-Mart (X-axis) and S&P 500 (Y-axis). It also displays the frequency distribution chart of
price percentage changes for both.

The table at the right shows the statistical summary of the regression including raw beta (based
on the regression), adjusted beta (2/3 raw beta + 1/3), R-square and t-Test. Please note that beta
is calculated based on the regression and you may need to examine the regression significance
(e.g. R-square level) before using it in your model.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 30
 Customize the
parameters as
you prefer

The frequency
distribution
charts for
dependent and
independent
variables

Figure 4.29 Beta Calculations: BETA<GO>

HRA<GO>, Historical Regression Analysis, allows you to run regression between two securities
based on the historical prices. It has similar layout and logic as BETA<GO> with custom
parameters at the top, regression chart and statistics table below. Unlike BETA<GO> which
only allows regression based on the percentage change of prices, HRA<GO> provides full
flexibility with regression on price value, difference and percentage change as well as
logarithmic form. HRA<GO> can also be used to perform two regressions in different date
ranges at the same time for comparison.

Select percentage
change, value,
difference or log
form of the data
for regression as
you like

Figure 4.30 Historical Regression Analysis: HRA<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 31
EQRP<GO>, Equity Risk Premium, calculates the expected excess return over the risk free rate
(equity risk premium) of a selected equity using CAPM. The box at the top left displays the
expected market return and risk free rate which can be customized based on your own
assumption. The default market proxy and risk free rate for US are S&P 500 Index and US 10-
year Treasury yield respectively. We will introduce the country risk premium in detail in the
CRP<GO> function. The box at the right displays the risk premium for the stock by multiplying
the country risk premium and beta. You can display the historical risk premium of the stock,
country risk premium, risk free rate and expected market return in a graph to compare their
trends over the time. To view the historical equity risk premium as of a specific date, you may
select a date in the top amber box. To view the historical risk premium in each reporting period,
you may click the 12) History tab at the top.

Move the mouse

to the icon to see
the default
parameters for
beta: 2-year
weekly data

Figure 4.31 Equity Risk Premium: EQRP<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 32
CRP<GO>, Country Risk Premium, displays risk free rate and expected market return for each
country which can be utilized to calculate the risk premium of a stock in CAPM.

Mkt Return – RF
Rate = Premium

Mkt Return is
weighted IRR of
the equity index
used for the
country market
proxy

Figure 4.32 Country Risk Premium: CRP<GO>

If you move the mouse to a row, a note box will pop up showing the index tickers for market and
risk free rate proxy. For example, S&P 500 Index and US 10-year Treasury yield are market and
risk free rate proxy respectively for US and Hong Kong uses Hang Seng Index and HKMA Hong
Kong Exchange Fund 10-year Notes. The Mkt column represents the expected market return and
is calculated from the weighted (same as the index weightings) IRR (derived from DDM) of the
members in the proxy equity index. You can also click the row to see the historical data of that
country.

CORR<GO>, Correlation Matrix, allows you to create correlation matrix among multiple
securities in different assets classes (equities, indices, currencies, commodities and etc.) to study
whether they move inversely or in tandem with each other and identify trade opportunities
through changing spreads.

You may click 90) Create New at the top left after running CORR<GO> to create a new matrix.
In Step 1, you may specify the date range for correlation calculation and data frequency. In Step
2, you can enter the securities for the matrix. You can tick Symmetric Matrix if you would like to
create a symmetric matrix. You can also add securities from source such as equity index and
equity screening. Let us examine the correlation of stock prices of mining companies with base
metal prices (see Figure 4.33).

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 33
Tick the box if you
Import securities
would like to create
from source such
a symmetric matrix:
as equity index and
the max symmetric
equity screening to
matrix is 10 x 10;
save your time
the max asymmetric
matrix is 500 x 10.

Use spot prices of

major base metals
Use mining giants trading in LME as
across the globe as an example (e.g.
an example (e.g. copper, aluminum,
BHP Billiton, Rio nickel and zinc)
Tinto and Anglo
American)

Figure 4.33 Correlation Matrix setup in CORR<GO>

After finishing the matrix setup by giving a name in Step 3, you will see the result page with the
matrix and over the past two years. Anglo American PLC tends to have higher correlations with
these base metals than others. You can change the date range at the top left to view the
correlation for a different period. You can also click 1) Edit at the top left to further modify the
correlation such as changing the calculation base, applying log form and lag. CORR<GO> also
provides other statistical measures such as t-Test and significance to test the statistical reliability.
You can switch them from the Calculation amber box at the top (see Figure 4.34).

By clicking each number in the matrix, you are able to view the historical rolling correlations in
graph and regression in the 2) Scatter Chart tab on the top left.

Figure 4.34 Result page in CORR<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 34
PEBD<GO>, Equity Relative Valuation: Price Bands, graphs price ratio bands to illustrate how
the stock price would be historically and in the future given certain levels of price ratio. In the
Valuation Metric Bands box, you can choose the price ratio for the band metric such as P/E,
P/BV, P/CF or P/S. After setting up the parameters, you will see the bands graph at the bottom
showing what the stock price would be at different levels of price ratio with the actual price to
help you identify whether the price is trading at a historical high or low price ratio.

Figure 4.35 Price Ratio Bands & Valuation: PEBD<GO>

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 35
Exercise
1. Find the percentage of shares held by insiders of Inner Mongolia Yili.
2. Identify whether Mengniu’s Chairman sits on the Board of other organizations.
3. Find the percentage of revenue generated from drug Lipitor for Pfizer in FY 2011.
4. Identify the top 5 suppliers of Samsung Electronics and calculate the percentage of cost
generated for Samsung from them.
5. Identify whether Qantas Airways omitted its dividends in 2009.
6. Find IBM’s initial long term rating by Moody’s.
7. Identify the number of M&A deals and their total size in 2011 that Chinese companies are
acquirers.
8. Compare the sizes of IPO deals that were announced in 2011 for the stock exchanges in the
US and Hong Kong.
9. Identify the top 10 underwriters in the Asia Pacific equity offerings market in 2011.
10. Examine Apple’s capital structure.
11. Compare the adjusted beta for 1 HK and 5 HK relative to Hang Seng Index.
12. Construct a symmetric correlation matrix for IBM, Microsoft and Google.

Copyright © 2018 by Faculty of Business and Economics, The University of Hong Kong 36