Introduction to Valuation
This session explores different approaches to valuation using price and earnings based models and discounted cash flow models.
Exploring different approaches to valuation.
Estimates needed for valuation
Enterprise (Company) value versus equity value
Earnings Normalization And The Projection Of Cash Flows
This session covers the trending of earnings and cash flows. In particular, we explore the required normalization for earnings and pitfalls to watch for when building a forecast.
Adjustments to earnings
The Discounted Cash Flow Model (DCF)
This session designs a discounted cash flow model. The cash flow estimates are explored in detail. We evaluate different terminal value models and give guidance to which ones should be used under alternative growth hypothesis. The risk adjusted weighted average cost of capital is discussed and derived.
Cash flow estimates
Estimating growth rates
Estimating cash flows to the firm
Dividend Discount Models
Residual Income Models
Discount Rate: Weighted Average Cost of Capital
Cost of Debt
Cost of Equity
Equity Valuation and Sensitivity Analysis
Now that the operating cash flows have been discounted, this session shows the adjustments necessary for investments and other balance sheet items. The result will be a value to the equity holders, dividing by the number of shares; the class will jointly arrive at the price per share.
As an exercise, the class does a sensitivity analysis of the valuation using different assumptions.
Application of the DCF Model
Together, the class works an example of a high growth company.
Comparable Company Analysis
Enterprise Value versus Equity Value
Valuing a company using Multiples