Lazard Company Profile

Lazard Ltd Shs A (LAZ) is a financial advisory and asset management firm. The company has a diverse set of clients around the globe including corporations, governments, institutions, partnership, and individuals. The company is currently operating from 42 cities in key business and financial centers across 27 countries throughout North America, Europe, Asia, Australia, the Middle East, and Central and South America. Moreover, LAZ has 2,610 employees as of 2015.

 

 

Lazard Ltd Shs A (LAZ) Extended Graph Analysis

 A. LAZ CASH FLOW

	Net cash provided by operating activities	Net cash used for investing activities	Net cash provided (used for) financing activities	Capital expenditure	Free Cash Flow
2011	397,277,000	-45,277,000	-552,359,000	-45,277,000	442,554,000
2012	481,908,000	-84,933,000	-563,220,000	-84,933,000	566,841,000
2013	526,697,000	-54,553,000	-487,072,000	-54,553,000	581,250,000
2014	736,017,000	20,099,000	-435,369,000	-20,099,000	715,918,000
2015	887,296,000	-25,952,000	-746,804,000	-25,952,000	913,248,000
2016	601,287,000	-37,653,000	-486,952,000	-37,653,000	638,940,000
2017	795,561,000	-36,015,000	-519,117,000	-36,015,000	831,576,000

Facts:

• Cash from operating activities is $795.6 million.
• And the cash from investing activities is -$36  million.
• In addition, the net cash provided by (used for) financing activities is -$519 million.
• While, capital expenditure is -$36 million.
• Likewise, free cash flow is $831.6 million.

Explanation:

• The five years of growth of cash from operating activities was 100 percent.
• Net cash used for investing activities are purchases of property, plant, and equipment.
• In addition, the net cash used for financing activities is long-term debt repayment, repurchase of treasury stock, and cash dividend payments.
• While, capital expenditures are purchases of property, plant, and equipment.
• Likewise, free cash flow has 88 percent growth in five years.

Interpretation

Lazard is capable of generating sufficient cash for its business operation.

Summary

Overall, Lazard is generating sufficient cash revenue for the business operation. In addition, the company was able to purchase properties, plant, and equipment for the operations. Moreover, the company was able to pay their long-term debt, repurchase treasury stock and cash dividend payments. Finally, free cash flow is growing.

B. LAZ BALANCE SHEET

	Cash and Cash Equivalent	Current Assets	Total Assets	Current Liabilities	Total liabilities	Equity	Retained Earnings	Total Debt	Working Capital
2011	1,289,828,000	2,377,564,000	3,081,936,000	294,502,000	2,355,793,000	726,143,000	258,646,000	1,076,850,000	2,083,062,000
2012	1,142,684,000	2,100,632,000	2,986,893,000	273,411,000	2,417,237,000	569,656,000	182,647,000	1,076,850,000	1,827,221,000
2013	1,086,361,000	2,139,187,000	3,011,137,000	280,465,000	2,450,928,000	560,209,000	203,236,000	1,048,350,000	1,858,722,000
2014	1,274,340,000	2,487,802,000	3,332,236,000	336,178,000	2,625,492,000	706,744,000	464,655,000	1,048,350,000	2,151,624,000
2015	1,521,944,000	2,596,016,000	4,486,766,000	506,665,000	3,173,311,000	1,313,455,000	1,123,728,000	998,350,000	2,089,351,000
2016	853,887,000	1,889,508,000	4,302,303,000	587,059,000	3,001,161,000	1,301,161,000	1,058,189,000	990,488,000	1,302,449,000

Facts:

• Cash and cash equivalent was $853.9 million in 2016.
• And the current assets were $1.9 billion IN 2016.
• In addition, total assets were $4.3 billion IN 2016.
• While the current liabilities were $587 million IN 2016.
• On the other hand, total liabilities were $3.0 billion IN 2016.
• Moreover, retained earnings were $1.1 billion IN 2016.
• And total equity was $1.3 billion IN 2016.
• Rather, working capital was $1.3 billion IN 2016.
• Total debt was $1.2 billion IN 2016.

Explanation:

• Cash and cash equivalent have negative growth of 34 percent from 2011 at $436 million.
• And the current assets have negative growth of 21 percent from 2011 at $488 billion.
• Likewise, total assets have grown 40 percent in 2011 at $1.2 billion.
• On the other hand, current liabilities increased by 99 percent from 2011 at $293 million.
• And the total liabilities increased by 27 percent from 2011 at $645 million.
• In addition, retained earnings had increased by 309 percent from 2011 at $800 million.
• Similarly, total equity had increased by 79 percent from 2011 at $575 million.
• And the working capital was erratic in movement and has decreased 37 percent from 2011 at $781 million.
• Finally, the total debt had decreased by 8 percent from 2011 at $86 million.

Interpretation

As a result, the company is financially healthy and stable in the last six years of its business operations.

Summary

Overall, LAZ is liquid and capable of paying its short-term financial obligations using its cash and cash equivalents. Although its liability/equity ratio is 72/28 percent, respectively, meaning the company is using more of borrowed funds in its capital structures, in other words, creditors have more stake in the assets of the company than the investors. Moreover, total assets, retained earnings and equity were increasing year-over-year from 2012.

C. LAZ RATIOS

	Operating Margin	Net Margin	Return on Assets	Return on Equity	Asset Turnover	Financial Leverage	Debt to Equity
2011	12.90	9.56	5.38	25.38	0.56	4.24	1.51
2012	6.50	4.41	2.78	13.01	0.63	5.24	1.92
2013	10.90	8.07	5.34	28.36	0.66	5.38	1.90
2014	22.60	18.57	13.47	67.45	0.73	4.71	1.50
2015	-0.70	41.91	25.23	97.65	0.60	3.41	0.77
2016	22.20	16.62	8.57	30.41	0.52	3.69	0.97
2017	23.20	17.43	10.20	36.96	0.59	3.80	1.04

Facts:

• The current operating margin is 23 percent; averaging 14 percent from 2011.
• And the net margin was 17.43 percent; averaging 17 percent from 2011.
• In addition, return on assets was 10.20 percent; averaging 10.14 percent from 2011.
• Likewise, return on equity was 36.96 percent; averaging 43 percent from 2011.
• Further, asset turnover was 0.59, averaging 0.61 from 2011.
• And the debt to equity was 1.37; decreased by 0.47 from 2011 and averaging 1.37.
• Financial leverage was 3.80; decreased by 0.44 from 2011 and averaging 4.35.

Explanation

• Operating margin shows that management is efficient and shows a decent leftover on revenue after deducting operating costs.
• And the net margin shows a decent return on revenue after deducting all expenses.
• On the other hand, return on assets shows a return of 10 cents for every dollar invested in assets.
• Moreover, return on equity shows a return of 37 percent on investments made in the stocks of LAZ.
• Likewise, asset turnover shows that LAZ is generating 59 cents of net sales for every dollar invested in the assets.
• While debt to equity shows that more assets are financed by debt than those financed by investors.
• Hence, financial leverage is total assets over stockholders equity. LAZ uses more debt in its capital structure.

Interpretation

It indicates that LAZ is profitable, however, the company is utilizing more on borrowed funds to finance assets.

Summary

Overall, the results of ratios show that the company is profitable in its business operations and can generate a decent return on the investments made by investors. However, creditors have more stake in the assets of the company.

D. LAZ INCOME AND MARKET

	Total Revenue	Revenues, net of int expense	Inc before inc taxes	Net Income	Intrinsic Value	Market Cap
2011	1,919,638,000	1,829,512,000	235,499,000	174,917,000	1,377,240,000	3,680,180,000
2012	1,994,013,000	1,912,448,000	123,885,000	84,309,000	1,415,130,000	3,444,000,000
2013	2,064,733,000	1,985,352,000	216,807,000	160,212,000	2,237,800,000	5,472,000,000
2014	2,363,017,000	2,300,447,000	519,465,000	427,277,000	2,935,940,000	6,492,000,000
2015	2,404,767,000	2,353,608,000	-16,620,000	986,373,000	5,713,680,000	5,841,000,000
2016	2,383,663,000	2,235,055,000	517,461,000	387,698,000	6,220,410,000	5,064,000,000
2017	2,510,967,000	2,458,617,000	569,281,000	428,428,000	6,096,720,000	5,333,000,000

Facts

• The current revenue is $2.5 billion; grown 31 percent from 2011.
• The revenue net of interest expense was $2.46 billion; grown 24 percent from 2011.
• Income before income taxes was $569 million; grown 142 percent from 2011.
• Net income was $428 million; grown 145 percent in six years.
• The current intrinsic value was $6.1 billion; grown 343 percent in six years.
• Market capitalization was $5.3 billion; grown 45 percent in six years.

Explanation

• Revenue is interest and dividend income.
• Interest expense is approximately 2 percent of total revenue.
• And the income before income taxes is 23 percent of total revenue.
• Likewise, net income is 17 percent of the total revenue.
• On the other hand, the Intrinsic value is increasing year-over-year at an average of 32 percent.
• Moreover, the growth in market capitalization year-over-year was 9 percent.

Interpretation

The income statement of LAZ shows that the company is capable of generating sufficient income for its daily operation. Moreover, in 2016 and 2017 shows that the stock of LAZ is undervalued.

Summary

LAZ is efficient in generating sufficient revenue and earnings for its operations. It indicates that the company is profitable and financially stable.

E. LAZ KEY EXECUTIVE COMPENSATION

	Key Executive Compensation	Chairman and CEO – Kenneth M. Jacobs	CEO of Lazard Asset Management – Ashish Bhutani	COO and CEO, Fianancial Advisory – Alexander F. Stern	General Counsel – Scott D. Hoffman
2011	40,684,344	12,461,056	11,985,709	5,238,088	3,878,514
2012	30,647,351	8,842,195	9,681,715	4,718,605	3,495,131
2013	29,836,142	8,615,321	9,628,768	4,689,013	3,255,326
2014	33,987,277	9,992,527	10,486,058	5,878,981	3,682,299
2015	37,363,585	11,679,538	10,443,083	6,806,199	4,064,935
2016	36,239,177	11,641,070	9,543,515	6,945,432	4,017,627

Facts:

• The key executive compensation was $36 million.
• The Chairman and CEO compensation are $ 11.6 million.
• And the CEO of Lazard Asset Management compensation was $9.5 million.
• In addition, the COO and CFO Financial Advisory compensation were $6.9 million.
• Moreover, the General Counsel compensation was $4 million.

Explanation

• The key executive compensation represents 1.5 percent of the total revenue.
• The Chairman and CEO compensation represent 32 percent of the total key executive compensation.
• And the CEO of Lazard Asset Management compensation represents 26 percent of the total key executive compensation.
• While the COO and CFO Financial Advisory compensation represent 19 percent of the total key executive compensation.
• And the General Counsel compensation represents  11 percent of the total key executive compensation.

Interpretation

The key executive compensation is composed of basic salary, bonus, restricted stock award, and other compensation.

Summary

Laz is paying its key executives a decent salary plus incentives and benefits.

 

F. LAZ LOBBYING AND CONTRIBUTIONS

	2012	2013	2014	2015	2016
Lobbying	0	630,000	610,000	560,000	360,000
Contributions	673,094	0	577,526	0	568,632

Facts

• The company spent lobbying year-over-year, and in 2016 lobbying was $360,000.
• Likewise, LAZ spent contributions and in 2016 contributions was $568.632.

Explanation

• LAZ lobbying is spending made to candidates like Hillary Clinton and many others.
• In addition, the contributions of $568,632 are composed of the following:
  • Contributions to candidates                           $351,148
  • Contribution to Leadership PACs                        7,900
  • Contributions to parties                                     183,584
  • Contributions to outside spending groups      26,000

Interpretations

Lazard is spending approximately 2 percent of revenue in lobbying and 2 percent of revenue in contributions.

Summary

Annually the company is spending lobbying to candidates and other figures. The company’s highest spending on lobbying was in 2009 in approximately $1 million.

G. LAZ FINANCIAL STRENGTH

	2011	2012	2013	2014	2015	2016	2017	2018
Score	2.99	2.81	3.68	4.12	3.09	2.91	2.98	3.05

Facts

• The calculated score in 2011 was 2.99.
• In 2012 score was 2.81.
• And in 2013 score was 3.68.
• Likewise in 2014 score was 4.12.
• While in 2015 score was 3.09
• Moreover, in 2016 score was 2.91
• Future score for 2017 was 2.98
• Finally, the future score in 2018 was 3.05

Explanation

Lazard has an erratic score from 2011. A score of above 1.8 to 3 indicates that the company might be headed to bankruptcy and a score of above 3 is considered financially stable.

Interpretation

The future score in 2018 is based on the current trend movement in 2017. It shows from 2016 to 2017 there was an upward trend in the score, therefore, the future score is up at the same ratio.

Summary

Multiple financial ratios were combined to form the score, it is a gauge of the company’s financial strength and the likelihood of bankruptcy. It indicates that LAZ is considered financially stable, although, the score in 2017 fall less than 3. The score went up from 2016, therefore, the future score is based on the current trend.

Overview

Lazard is generating sufficient cash revenue for the business operation. The company was able to purchase properties, plant, and equipment for the operations. Moreover, the company was able to pay their long-term debt, repurchase treasury stock and cash dividend payments. Above all, free cash flow is growing.

Further, Lazard is liquid and capable of paying its short-term financial obligations using its cash and cash equivalents. Although its liability/equity ratio is 72/28 percent, respectively. Meaning, LAZ is using more of borrowed funds in its capital structures. In other words, creditors have more stake in the assets of the company than the investors. In addition, total assets, retained earnings and equity were increasing year-over-year from 2012.

Furthermore,

The company shows profitability in its business operations and can generate a decent return on the investments made by investors. Moreover, the company is efficient in generating sufficient revenue and earnings for its operations. It indicates that the company is profitable and financially stable.

In addition, LAZ is paying its key executives a decent salary plus incentives and benefits. Further, the financial strength indicates that LAZ is considered financially stable, although, the score in 2017 fall less than 3, and the score went up from 2016, as a result, the future score is based on the current trend.

CITATION

https://www.sec.gov/Archives/edgar/

http://financials.morningstar.com/income-statement/is.html?t=LAZ

https://www.opensecrets.org/orgs/summary.php?id=D000035294&cycle=2016

Researched and Written by Criselda

Twitter: criseldarome

Knight Capital Group Inc. (KCG) is based in Jersey City, NJ is a global financial services firm They provide access to the capital market across multiple asset classes to a broad network of clients. Including broker-dealers, institutions, and corporations. It started in 1990 as a market maker in equity securities. KCG recently ventured also into investment banking and asset management.

Please take note that this valuation was done for special events or issues that pop-up in the stock market recently. In which Knight’s trading loss of $440M shows cracks in equity markets.

KCG Investment in Enterprise Value

The concept of enterprise value is to calculate what it would cost to purchase an entire business. Enterprise Value EV) is the present value of the entire company.  On the other hand, market capitalization is the total value of the company’s equity shares. In essence, it is a company’s theoretical takeover price, because the buyer would have to buy all of the stock and pay off existing debt, and taking any remaining cash.

Enterprise Value = Market Capitalization + Total Debt – (Cash and Cash Equivalent + Short Term Investment)

Explanation

The total debt represents a 21 percent average of enterprise value, while cash and cash equivalent represent 32 percent average of the enterprise value.  On the other hand, the enterprise value is lesser by 11 percent in market value due to its cash which is higher than total debt.  Likewise, buying the entire company an investor would be paying $1107 at $3 per share.  The distribution in buying would be as follows:

Operating assets – 100 percent  =  Equity – 100 percent 

Market capitalization is trending at 4, -1, -6, -14, and -13 percent from 2008 to 2012 TTM. Average of -6 percent. Enterprise value is trending at -8, -0.3, 12, -13 and -1 percent from 2008 to 2012 TTM. Average of -22 percent. Price dropped to 74 percent in the trailing twelve months.

Benjamin Graham’s Stock Test

Net Current Assets Value per Share (NCAVPS)

The Net Current Asset Value (NCAV) is a method from Benjamin Graham it is to identify whether the stock is trading below the company’s net current asset value per share. Specifically two-thirds or 66 percent of net current asset value. Meaning they are essentially trading below the company’s liquidation value and therefore, the stocks are trading in a bargain, and it is worth buying.

Net Current Asset Value  (NCAV) =  Current Assets – Current Liabilities

NCAVPS = NCAV / # of shares outstanding

Explanation

Market price was 74 percent average over the 66 percent of the NCAVPS. This means that the price was overvalued using market capitalization per share. This indicates that the stock of KCG was trading above its liquidation value from 2007 to 2012 trailing twelve months. Therefore, it did not pass the stock test of Benjamin Graham. In the trailing twelve months, the company’s net current asset value was negative since current liabilities is greater than current assets.

Market Capitalization/Net Current Asset Value (MV/NCAV)

Another stock test by Graham is by using market capitalization and dividing it to net current asset value (NCAV).  The idea is, if the result does not exceed the ratio of 1.2, then the stock passes the test for buying.

Net Current Asset Value  (NCAV) =  Current Assets – Current Liabilities

NCAVPS = NCAV / # of shares outstanding

The results above showed that the ratio was over 1.2 from 2007 to 2012 trailing twelve months, meaning the stock of KCG is trading at an overvalued price. Therefore the stock of KCG did not pass the stock test of Benjamin Graham.

Benjamin Graham’s Margin of Safety

Graham called it the intrinsic value. According to Graham, the investor should invest only if the market price is trading at a discount to its intrinsic value. Value investing is buying with a sufficient margin of safety. Graham considers buying when the market price is considerably lower than the intrinsic or real value, a minimum of 40 to 50 percent below. The enterprise value is used because I think it is a much more accurate measure of the company’s true market value than market capitalization.

The margin of Safety (MOS)

The margin of safety represents 73 percent average of the real value (intrinsic value) and the price represents 27 percent average of the real value. This showed that the price is undervalued by an average of 73 percent.

The formula for Intrinsic Value.

Intrinsic Value = Current Earnings x (9 + 2 x Sustainable Growth Rate). Then the results are:

Explanation

• The earning per share (EPS) in the trailing twelve months was adjusted from 1.10 to 0.increaseincreasing in the number of shares of 260 shares, totaling to 355 shares (95 + 260) for TTM. The intrinsic value was then recalculated which resulted in a decrease in value by $16. (from $28 to $12).
• In addition, calculation for EPS was: Basic Earning per Share = Net Income / Weighted average number of shares wherein,                   
  •  Net Income – $104 
  • Weighted Average # of shares = 95 + (95+260) = 95 + 355 = 450/2 = 225
  • Basic Earning per Share = $104/225 = $0.46
• Moreover, the enterprise value per share represents 32 percent  average of the intrinsic value. It means the price was undervalued by 68 percent against the true value of the stock.    

Annual Growth Rate (SGR)

 

Intrinsic Value Graph

The graph shows that the intrinsic value was greater than the price by 68 percent average, therefore, the price was trading at the undervalued price. Meaning the price was cheap.

The Relative and Average Ratio

Considering the growth of KCG from 2007 to 2012, I calculated the SGR using the relative ratio and the average ratio and compared the results.  It shows that intrinsic value and the margin of safety have higher results. The table below will show you the difference.

   

It shows that using the average ratio in calculating the growth of KCG, resulted in favorable intrinsic value and margin of safety. The result is the average for 5 years.

KCG Relative Value Method

Price to Earning*Earning per Share (P/E*EPS)

The concept of relative valuation methods for valuing a stock is to compare market values of the stock with the fundamentals (earnings, book value, growth multiples, cash flow, and other metrics) of the stock.

 

The price was undervalued from 2007 to 2009, and it was fair value in 2010 and 2011. This is due to an adjustment in the earning per share (EPS) during the trailing twelve months for the increased in stocks by 260 shares.

Moreover, using the average price to earnings rather than the relative price to earnings shows a higher ratio. The table below shows the comparison between the two ratios:

Metrics	Relative Ratio	Average Ratio
Price to Earnings	61 avg	74 avg
P/E*EPS	8 avg	12 avg
% of EV over P/E*EPS	43% avg	46% avg

With this comparison, we consider the company’s growth from its five years of operation, the results were greater than 8 and 6 percent of the price to earnings and P/E*EPS, respectively.

Enterprise Value/Earning per Share (EV/EPS)

The use of this ratio is to separate price and earnings in enterprise value. And by dividing the enterprise value to projected earnings (EPS), the result represents the price (P/E) and the difference represents the earnings (EPS).

  

The table showed that Price (P/E) represents an average of 81 percent; while earnings (EPS) represents 19 percent average.

Enterprise Value (EV)/Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) or EV/EBITDA)

This metric is used in estimating business valuation. It compares the value of the company inclusive of debt and other liabilities to the actual cash earnings exclusive of non-cash expenses. This metric is useful for analyzing and comparing profitability between companies and industries.

EBITDA = Net Income + Interest Expense + Tax + Depreciation + Amortization

  

This means that it will take 4 times of earnings of the company to cover the cost of buying or in other words, an investor will wait four years to cover the costs of the purchase price.

Conclusion

The stock price was trading at an overvalued price when pertaining to the results of Graham’s valuation method. Which are the NCAVPS and the MV/NCAV valuation. As a result;t, the stock was trading above the liquidation value of the company. Therefore, it did not pass the stock test of Benjamin Graham.

The margin of |Safety (MOS)

The margin of safety indicates that the price was undervalued by an average of 68 percent. In the trailing twelve months, the price was undervalued by 75 percent. In other words, the price was cheap.Using the average ratio in calculating the sustainable growth rate, the intrinsic value and the margin of safety represents 42.5 and 72 percent, respectively against 40.66 and 68 percent using the relative ratio.

Relative Valuation

The relative valuation method shows that the price was undervalued from 2007 to 2009. Moreover, the earning per share (EPS) decreased to $0.46 from $1.10. Due to an additional 260 shares totaled to 355 shares in the trailing twelve months. While the EV/EPS showed an overvalued price because the price represents 81 percent. And the earnings represent 15 percent of the enterprise value. In TTM, the price is 100 percent and 0 percent earnings due to the adjusted EPS.

Cost of Buying

Buying the entire business of KCG, an investor will wait 4 years to cover the costs of buying. In other terms, it will take 4 times the earnings of the Knight to cover the purchase price. Price to date, 8/15/2012 was $2.99 at $301.0 market capitalization.

Overview

The stock was trading above the liquidation value of KCG, in other words, the stock was overvalued. And the stocks did not pass the stock test of Benjamin Graham. The margin of safety indicates a 77 percent average and in the trailing twelve months. Moreover, it has a 75 percent margin of safety, meaning the price was cheap at $2.99 per share. On the other hand, relative valuation shows an overvalued price for P/E*EPS. And the EV/EPS valuation. Because the price represents 81 percent. 

Above all,

There was a margin of safety of 75 percent in the trailing twelve months meaning, the price is considered cheap at $2.99 per share.  Further, Graham would take the opportunity to buy stocks if the price was lower by 50 percent of the intrinsic value. Thus he considers the stock trading at a discount price. So, I recommend a BUY in the stock of Knight Capital Group Inc (KCG).

Researched and written by Criselda