- General Introduction to Corporate Valuation
- Financial Statement Analysis
- Asset-Based Valuation Techniques
- Marked-Based Valuation Methods
- Future Earnings and Cash Flow Valuation
- Models for Economic Value Added
The objective of this practical three-day course is to give you a good understanding of
state-of-the-art techniques for valuing corporations and strategic investments.
We start with a general introduction to corporate valuation where we discuss important
objectives of corporate valuation, including private equity fundraising, mergers, acquisitions
and new issues.
We then explain how the analysis of a company’s financial statements can serve as a good
starting point for valuation. We look at how assets, liabilities and cash flows can be analyzed
to gain insight in the company’s operating efficiency and financial strength. We also discuss
how historic financials should be restated before they can be meaningfully used in valuation,
and we explain how management can use “financial shenanigans” to flatter financial
statements.
We then continue to present three alternative (or complementary) routes to corporate
valuation.
In asset-based valuation we look at the company’s “hard assets”, represented by their book
value or liquidation value and explain how it can be determined whether a company is over- or
undervalued by the market.
We then look at market-based valuation techniques that focus on the market price for similar
businesses at a given point in time. Here, we explain how to assess the relative value of
corporations by comparing their P/E ratio, PEG, comparable sales, gross revenues and other
variables. We also explain how to compare corporate valuations on a risk-adjusted basis.
Further, we explain how corporations can be valued using models based upon projections of
earnings and cash flows. We look “dividend discount models” as well as “free cash flow” models,
where future cash flows and enterprise value are modelled on more explicit assumptions about
firms’ “value drivers”.
Finally, we explain and demonstrate alternative measures of residual earnings and discuss the
use of “residual income” models.
Day One
09.00 - 09.15 Welcome and Introduction
09.15 - 12.00 Introduction to Corporate Valuation
-
Objectives of Corporate Valuation
- Fund raising
- Mergers and acquisitions
- Investment analysis
- Overview of Corporate Valuation Techniques
Financial Statement Analysis
-
The Financial Reporting System
- The Balance Sheet
- The Income Statement
- The Statement of Shareholders Equity
- The Cash Flow Statement
-
Analysis of Assets and Liabilities
- Analysis of Inventories
- Analysis of Long-dated Assets
- Case Study
- Exercise
12.00 - 13.00 Lunch
13.00 - 16.30 Financial Statement Analysis (Cont’d)
-
Analysis of Cash Flows
- Reconciling cash flow statement, income statement and balance sheet
-
Financial Shenanigans
- How Management Can Manipulate Earnings and other Financial Information
- Case Study and Exercise
Historical Earnings Valuation
- Recast of Historical Financials
- Debt-Paying Ability
- Capitalization of Earnings/Cash Flows
- Gross Income Multipliers/Capitalization of Gross Income
- Dividend-Paying Ability
- Exercise
Day Two
09.00 - 09.15 Recap
09.15 - 12.00 Asset-Based Valuation
- Book Value and Price/Book Value
- Liquidation Value
- Tobins Q
- Pitfalls in Using Assed-Based Valuation Techniques
- Case Study
- Exercise
Market-Based Valuation
- Comparing P/E Ratios
- The Comparable Sales Method
- Rules of Thumb/industry Averages
- Other Comparables
-
Risk-Adjusted Valuation
- Case Study
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.30 Future Earnings and Cash Flow Valuation
-
Discounted Cash Flow Models
- Introduction to DDM models
- The zero growth model
- The constant growth model
- A two-stage growth model
- Multi-stage growth models
- Deriving growth rates from accounting ratios
- Estimating the discount rate
- The relationship between risk (beta) and the P/E ratio
- Sensitivity analysis
- Case study
- Exercise
Day Three
09.00 - 09.15 Recap
09.15 - 12.00 Future Earnings and Cash Flow Valuation (Cont’d)
- Introduction to Free Cash Flow Analysis
-
The Company’s Value Drivers
- Sales growth
- Operating profit margin
- Taxes
- Working capital investments
- Fixed capital investments
- Free Cash Flow to Equity vs. Free Cash Flow to Firm
- Deriving the Free Cash Flows
- Deriving the Discount Rate and the Enterprise Value
- Analysis of Shareholder Value Creation
- Practical Case Study
- Small Exercise
12.00 - 13.00 Lunch
13.00 - 16.30 Future Earnings and Cash Flow Valuation (Cont’d)
-
Residual Income Valuation
- Residual income models vs. DDM models
- Calculating residual income
- Economic Value Added, Market Value Added and the measures
- The EVA™ Model
- Residual income models: strengths and weaknesses
- Practical case study
- Small Exercise
Evaluation and Termination of the Seminar