Advanced Corporate Valuation

2 days
Prague, NH Hotel Prague
  • Advanced Discounted Cashflow Valuation
  • Modelling Complex DCF Analysis
  • WACC for Non-standard Capital Structures
  • Peer Group Comparative Analysis
  • Analysing an M&A Valuation Case
  • Using EVA and CFROI Based Techniques
  • Adjustments to Residual Income Valuation Models
  • Real Option Valuation Techniques
Course Overview
In the current climate the valuation of assets and companies is subject to considerable debate. There is often a wide disparity between the views of buyer and seller given the degree of uncertainty regarding future cash-flows. The increased volatility of future cashflows in more difficult valuation scenarios further widens this perception gap.

The valuation problem is compounded by the misconception regarding the difference between the price that is paid for an asset and the expected future value of the asset. Price and value are not the same and valuation models allow us to understand the difference between what you pay for an asset and what future value you may derive from that asset.

This seminar takes valuation techniques considers important contemporary techniques including the application of the discounted cashflow techniques in emerging markets, mergers and acquisitions, understanding the residual income method and EVA, the application of CFROI and the use of real option analysis.

Case studies from a wide variety of sectors and countries are included as are practical exercises involving problem areas in valuation. The seminar also includes critiques of the conventional techniques and considers suitable alternatives to be deployed in differing circumstances.

09.00 - 09.15 Welcome and Introduction

Advanced Discounted Cashflow Valuation

  • Recognising the difference between price and valuation
  • Applications modelling capex flows and working capital movements
    • understanding the linkage between reinvestment rate, growth and risk
  • Fade rates on long term cashflows
  • Problems with calculating terminal value and long term growth rates
    • alternatives to the classic terminal value perpetuity
  • Estimating asset life
  • Evaluating the stable growth period
  • Handling problems of research expenditure and operating lease payments
    • Should we treat R&D as long term capex?
    • capitalising lease payments
  • Effective and actual tax rates
  • The concept of normalised earnings flows to avoid abnormal cashflow patterns
  • Using multi period terminal value models
  • Emerging market problems
    • Inflation
    • Legal structure and tax law
    • Macroeconomic uncertainty
    • Poor quality accounting data
    • Using probability weighted scenarios
  • Sensitivity analysis of the cashflow model

12.00 - 13.00 Lunch

Weighted Average Cost of Capital (WACC) and the Discount Rate

  • Review of capital asset pricing model (CAPM)
    • understanding the drawbacks with using the model
  • How to derive equity risk premiums in different countries
  • How betas are derived regressing company and market returns
  • A bottom-up method of calculating beta reflecting business mix and leverage
    • deleveraging betas for private company use
  • Which beta to choose for company valuation?
  • Problems with CAPM is it really still a valid concept?
  • Alternatives to CAPM
  • Market cost of risky debt
  • WACC calculation
  • Optimal capital structure and gearing risk
  • Calculating cost of capital for non-standard capital structures
  • Is WACC dead given the capital raising ability of modern firms?

Day Two

09.00 - 09.15 Recap

Peer group comparative analysis

  • Selecting the peer group
  • Alternative comparative ratios which can be used
  • Understanding that a multiple is just a simple cashflow model
  • Using price/earnings multiples and variations
  • EBIT,EBITDA and enterprise value multiples
  • Price to cashflow, price to book value multiples
  • Linking the multiples to the DCF model assumptions
  • Creating a table of multiple value ranges

Analysing an M&A Valuation Case

  • Evaluation of an acquisition target valuation
  • Use of selected valuation techniques
    • what synergies are possible?
    • when should synergy be considered
    • use of control premiums
  • Comparison of valuation results using DCF and relative price multiples
  • Understanding the value drivers of the company and the potential synergies
  • Comparing the pre-bid price with the actual price paid

12.00 - 13.00 Lunch

Using EVA and CFROI Based Techniques

  • Residual income model valuation technique
  • Problems inherent in using the residual income technique
  • Handling amortisation, provisioning, R&D expenditure and operating leases
  • Correlation to DCF model
  • Calculation of NOPAT and capital
  • Typical accounting adjustments for EVA calculation the Stern Stewart approach
  • Understanding the MICAP (market implied competitive advantage period) concept
  • MVA as a discounted EVA concept
  • Cashflow return on investment (CFROI) the Holt Approach
  • Comparison of DCF, EVA and CFROI as valuation methodologies

Real Option Valuation Techniques

  • Principle of arbitrage in deriving option based pricing
  • Using binomial option models
  • Simplifying real option analysis using the Black Scholes model
    • problems using the Black Scholes model for valuation
  • Applications of real option valuation models; technology, patents, oil and gas, biotech, etc
  • Problems using real option models

Evaluation and Termination of the Course

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