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Corporate Valuation

Duration: 3 days
  • 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
    • CAPM and other models
  • 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