Corporate Valuation
A Practical Approach with Case Studies
- © 2023
- Benedicto Kulwizira Lukanima 0
Department of Finance and Accounting, Universidad del Norte, Barranquilla, Colombia
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- Provides students with basic knowledge and advance skills for addressing some practical challenges in valuation
- Features case studies, practical, reflective and review questions, and web links
- Features slides, quizzes, Microsoft Excel illustrations, working data and sample syllabi online for download
Part of the book series: Classroom Companion: Business (CCB)
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About this book
This book provides students with basic knowledge and advance skills for addressing practical challenges in valuation. First, the book presents financial information as a vital ingredient for performing corporate valuation. Second, the book presents key concepts of value and valuation and basic techniques for cash flow discounting. Third, the book offers an understanding of the reality of valuation, not simply as a numerical subject, as most people tend to think, but as a combination of objective and subjective aspects. Finally, it examines valuation in relation to the linkage between a firm’s objective, management role in value creation, investors’ decisions, and the valuation role of financial information.
This book is designed and presented to make valuation easily accessible while also not diluting the nature of its complexity. To assist in the learning experience, the author provides illustrative case studies using real world data and review questions tocover all concepts. To assist professors, slides, Microsoft Excel illustrations, working data and sample syllabi are available online for download.
- Corporate finance
- Corporate valuation
- Value maximization
- Cost of capital
- Intrinsic valuation
- Equity valuation
- Firm valuation
- Investment decision
- Financial statement analysis
- Intrinsic value
- Relative value
- market value
- valuation challenges
- valuation techniques
- value creation
- free cash flow
Table of contents (22 chapters)
Front matter, the concept of value, existence of a firm, and the objective value maximization, an overview of corporate valuation.
Benedicto Kulwizira Lukanima
Corporate Value Creation
Time value of money, security markets and valuation, financial information as a source of valuation inputs, an overview of financial information, the basics of financial statement analysis, profitability analysis, financial leverage analysis, market perception analysis, free cash flows, the cost of capital, an overview of capital structure and cost of capital, the cost of equity, the cost of debt, intrinsic valuation, estimating growth rates, free cash flow discount models: cost of capital approach, authors and affiliations, about the author.
Benedicto Kulwizira Lukanima is Assistant Professor in the Department of Finance and Accounting at Universidad del Norte (Barranquilla, Colombia).
Bibliographic Information
Book Title : Corporate Valuation
Book Subtitle : A Practical Approach with Case Studies
Authors : Benedicto Kulwizira Lukanima
Series Title : Classroom Companion: Business
DOI : https://doi.org/10.1007/978-3-031-28267-6
Publisher : Springer Cham
eBook Packages : Economics and Finance , Economics and Finance (R0)
Copyright Information : The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023
Hardcover ISBN : 978-3-031-28266-9 Published: 05 August 2023
Softcover ISBN : 978-3-031-28269-0 Due: 05 September 2023
eBook ISBN : 978-3-031-28267-6 Published: 04 August 2023
Series ISSN : 2662-2866
Series E-ISSN : 2662-2874
Edition Number : 1
Number of Pages : XXVI, 705
Number of Illustrations : 14 b/w illustrations, 166 illustrations in colour
Topics : Business Finance , Financial Accounting , Financial Services , Macroeconomics/Monetary Economics//Financial Economics
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Company Valuation Using Discounted Cash Flow
Leading provider of teaching materials for management education
This module explains how to use discounted cash flow (DCF) to value a company and explores different DCF approaches to valuation.
6 Topics in This Module
Introduction.
The introduction begins with the bestselling Harvard Business Review article “What’s It Worth? A General Manager’s Guide to Valuation." The article first describes the limitations of the standard WACC approach of the DCF valuation of companies. As an alternative, the article recommends the APV, real options, and equity cash flow methods as better suited for valuing operations, opportunities, and ownership claims, respectively. The first supplement, “Note on Cash Flow Valuation Methods: Comparison of WACC, FTE, CCF and APV Approaches,” covers the same material at greater length and uses a capstone example to compare and contrast the various methods. The second note, "Valuation Methods and Discount Rate Issues: A Comprehensive Example," reviews the various valuation methods and uses a simple example to demonstrate the consistency of each method's results under similar assumptions.
WACC-Based DCF and Market Multiples
This section compares DCF valuation using WACC to the market multiples approaches. Mercury Athletic: Valuing the Opportunity , a brief case, uses the potential acquisition of a footwear subsidiary to teach students DCF valuation using WACC and compares the results with those drawn from market multiples approaches. The alternative case, Healthineers: A Strategic IPO , covers the valuation of a subsidiary of Siemens. In addition to valuing the subsidiary by DCF and market multiple methods, students are also asked to do a sum-of-parts valuation of the diversified firm. The supplementary technical note, "Corporate Valuation and Market Multiples," reviews the market multiples method of valuation and its limitations.
Adjusted Present Value
In Valuation of AirThread Connections , students must value a potential acquisition, a regional cellular provider, with the WACC-based DCF method and with APV. They must choose which method to use when the capital structure is stable and when it is changing, and estimate the effect of capital structure changes on assumptions in determining beta and the cost of capital. The alternative case, Seagate Technology Buyout , is a two-session case that concerns a leveraged buyout (LBO) of the disk drive operations of Seagate. Students are asked to perform both WACC-based DCF and APV valuations of the target (including estimating the cost of capital from comparables) and address the impact of financing decisions on value. The supplementary article, “Using APV: A Better Tool for Valuing Operations,” describes an APV analysis using a hypothetical company.
Capital Cash Flow
In Berkshire Partners: Bidding for Carter’s , Berkshire Partners is making a bid and deciding on a financial structure for an LBO of a leading producer of children’s apparel. Berkshire’s financial team uses CCF to calculate the value of William Carter Co. The students are also asked to consider how value is created in the private equity world. "Note on Capital Cash Flow Valuation," the supplemental reading, walks students through the mechanics of the calculation.
Equity Cash Flow
In Acova Radiateurs , students must value a takeover candidate for an LBO in an international setting. The teaching note provides one- and two-day teaching plans, as well as ECF and CCF valuations of Acova. The alternative, The Hertz Corporation (A) , is a more difficult case, examining the LBO of Hertz in 2005. Students are asked to locate the sources of value in the deal, in operations, and in the financing and deal structures. While the case itself lacks detailed financial projections, both the teaching note and an electronic spreadsheet include sample projections. The supplement, "Note on Valuing Equity Cash Flows," is for advanced students. It teaches the mechanics and examines the biases and shortcomings of the ECF method.
Comprehensive Simulation
The following simulation can be used as a capstone for this module. It gives students the opportunity to use different valuation approaches. In Finance Simulation: M&A in Wine Country , students play the role of the CEO at one of three publicly traded wine producers, evaluating merger and acquisition opportunities among the three companies. WACC-based DCF, APV, and market multiples are some of the methods at their disposal to work up bids and negotiate deals.
1 hour, 30 minutes
About this module
Valuation is a key skill for managers. This module focuses on using DCF to value a company. The materials cover different approaches, including DCF using weighted average cost of capital (WACC), adjusted present value (APV), capital cash flow (CCF), and equity cash flow (ECF), as well as sum-of-the-parts valuation. Students can explore how valuations using DCF compare with valuations using market multiples. The module also includes comprehensive simulations that instructors can use as capstone exercises.
Learning Objectives
Understand why managers use DCF to value companies
Learn how to construct a discounted cash flow valuation
Appreciate the issues that arise in determining an appropriate discount rate
Explore different approaches to discounted cash flow valuations, including WACC-based DCF, APV, capital cash flow, and equity cash flow
Understand how a valuation using DCF compares to a valuation using market multiples
Practice valuations using the appropriate DCF methodology
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COMMENTS
Abstract. This case is designed to learn equity valuation of a large manufacturing firm using discounted cash flow method. Students are advised to compute the fair value of Hero MotoCorp Limited ...
The object of this valuation report is to estimate the fair market value of 100% of the common stock in LEGGO Construction, Inc. (LEGGO or the Company), on a nonmarketable, control interest basis, as of December 31, 1999, for management purposes and internal planning. EXERCISE 1: The purpose of the valuation of LEGGO is to assist manage-ment in ...
First, projects the Company's expected cash flow each year for a finite number of years. Second, sums all the projected cash flows from the first step. And lastly, discounts the result from the second step by some rate to yield the value in terms of present day $ dollars. ♦ That, in a nutshell, is the core understanding of the DCF model.
Liquidation value - The amount that will be realized on sale of an asset or a group of assets when an actual/hypothetical termination of the business is contemplated/assumed. Liquidation value can be carried out under the premise of. Orderly transaction - normal marketing period, or. Forced transaction - a shortened/no marketing period.
Case Study: Sensitivity analysis perpetual growth rate, sales CAGR Table 7. Case Study: Income statement estimates Table 8. Case Study: Liabilities structure ... Table 10. Case Study: Terminal Value calculation Table 11. Case Study: DCF valuation Figure 1. LIBOR credit spread (in bp): Source: Bloomberg Professional Database, 2008 . Discounted ...
In practice, the most frequently applied method is referring valuation to discounted cash flows. The formula for business valuation using the discounted cash flow method [ 9 ]: W d = ∑ a t * NCF t + RV, W d —income value, a t —discount rate for the year t, NCFt—net cash flows for the year t, RV—residual value.
Identification number: Author: Anh Le Title: Equity Valuation Using Discounted Cash Flow Method - A case study: Viking Line Ltd. Supervisor (Arcada): Andreas Stenius. Commissioned by: Abstract: The value of an asset is the future cash flow it can generate discounted at an opportunity rate that reflects the risks of the asset.
The case study of this paper focuses on valuing Zoom on October 2020 using several valuation methodologies. The outcome of the case study provides a share value of between $344.5 and $440.6, which is aligned with the estimations made by several investment banks in that period of time.
About this book. This book provides students with basic knowledge and advance skills for addressing practical challenges in valuation. First, the book presents financial information as a vital ingredient for performing corporate valuation. Second, the book presents key concepts of value and valuation and basic techniques for cash flow discounting.
Objective. Standardise the various principles, practices and procedures followed by Registered Valuer and other valuation professionals in valuation of assets, liabilities or a business. Set out concepts, principles and procedures which are generally. accepted internationally having regard to legal framework and practices prevalent in India.
A case study: Business valuation introduction. Journal of the International Academy for Case Studies, 28(S5), 1-2. between factors. Notwithstanding, contextual analyses might be utilized to foster theories that can then be tended to in trial research. Such cases exhibit how case examination can be utilized
This is one of the most popular methods of this type used in practice, namely, Discounted Cash Flows (DCF). For the calculation, the available econometric software used in business valuation practice in the market was applied. Table 5. Example of valuation with the method of income (Discounted Cash Flows). XYZ S.A.
This section compares DCF valuation using WACC to the market multiples approaches. Mercury Athletic: Valuing the Opportunity, a brief case, uses the potential acquisition of a footwear subsidiary to teach students DCF valuation using WACC and compares the results with those drawn from market multiples approaches.The alternative case, Healthineers: A Strategic IPO, covers the valuation of a ...
The approach uses valuation techniques from KPMG's True Value ... 9f4594703/20_english_summary_a52.pdf Retrieved 10 September 2015 ... 6 | KPMG TRUE VALUE CASE STUDY - VOLVO GROUP 215 KPMG International Cooperative TrueTotal Cost of Ownership transforms the business case
The valuation date is always as of a single point in time, typically a day. Valuation of a business is a dynamic, not static, exercise, which are used for a variety of purposes, including estate tax, income tax, gift tax, ESOPs (employee stock ownership plans), marital dissolution, etc.
DCF (discounted cash flows) valuation has had a long tradition that dates back to early works of Miller, Modigliani, Gordon and Shapiro. Major contribu - tions in the field of discounted cash flows valuation have been made by Cope - land[1], Damodaran[2]and Fernandez[3]. In colloquial terms, DCF valuation, the concept first known for valuing
2. Understand economic and general valuation theory concepts 3. To apprise on Application of general valuation theory to business valuation through understanding of specific valuation methods 4. Understand Cost, Market, and Income approaches and how they apply to business valuation 5. Case studies on valuation involving corporate re-structuring
- 5 - KPMG True Value Case Study Argos used the TV analysis to produce its Value Added Statement (VAS) in 2016 which combines the company's financial earnings and its monetized socio-economic impacts into a single value2. Based on 2016 results, the company established a process to continue measuring and publishing its annual VAS.
ON CUSTOMS VALUATION AND IS SUBJECT TO APPROVAL BY WCO COUNCIL 1. CASE STUDY 14.1 USE OF TRANSFER PRICING DOCUMENTATION WHEN EXAMINING RELATED PARTY TRANSACTIONS UNDER ARTICLE 1.2 (a) OF THE AGREEMENT Introduction 1. This document describes a case where Customs took into account information provided in a