Corporate Valuation Models 1 von eduCBA Global Online Training Experts

Dozent des Vortrages Corporate Valuation Models 1

eduCBA Global Online Training Experts

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... level of cash flows prior to deriving a terminal value. Note that while projections become less reliable further out, it may still be necessary to go out up to 10 years or more in order to reach normalised levels. You should be careful to ensure that, for a cyclical business, you should end the forecast period at a mid point in the cycle. Furthermore, if the company you are forecasting is expected to have a competitive advantage, your period should be of sufficient length to capture the entire period of the competitive advantage. A simplified DCF can be created which projects only the items in the FCFF formula. However, a more rigorous approach pulls such results from a fully integrated three-statement model. In forecasting future cash flows, you should be aware of the sensitivity of cash flow streams over the forecast period. The traditional method of discounting cash flows assumes that cash flows occur at the end of each annual period. It ...

... Typically this is modeled comprehensively for capital intensive businesses 6.5% of Sales is SG&A 7% of the Sales is Capex. Modeled comprehensively for capital intensive businesses We have made a simplistic assumption schedule while discussing this in for Capex, we will make a detailed Financial ModelingIncome ...

... assumption agree with industry projections, If it is an expanding market, why will the company be able to maintain a constant market share. Or does the increase reflect a rising market share in a stagnant market? If yes, why? Are some firms leaving the industry? Why? Check reasonableness of margins. Be clear on the actions or events needed to trigger improvements in margins (or reasons for decreases in margins). Are the margin levels consistent with the structure of competition in the industry ...

... analysis requires high quality historic and projected financial information on the business. The quality of the financial information is crucial to DCF valuation -  “garbage in… garbage out”. The particular information required will depend on the nature of the company being valued but at the most basic level, detailed assumptions over the projected period are required for: Turnover - Operating margins - Interest charges - Taxation charges - Depreciation charges - Capital expenditure - Working capital movements. There is a danger of over-generalising in preparing cash flow forecasts - i.e. assuming a constant growth rate after the first couple of years. It is important to question the forecasts and consider all cyclical, ...

... Terminal Value - Trading multiples of terminal year Net Profit, EBITDA, EBIT - Trading multiples of (terminal year + 1) Net Profit, EBITDA, EBIT “Perpetuity value” of cash flows after terminal year Discount Rate Present Value - WACC of companies in similar businesses to reflect the relative risk - Cost of Equity using CAPM Model - Determine a range of values for the enterprise by discounting the projected free cash flows and terminal values to the present Adjustments - Adjust valuations for all assets ...

... cash is free to go to the debt and equity holders. The extra cash is known as Free Cash Flows. TECHNICAL CALCULATION OF FREE CASH FLOWS. The above formula is mostly used by analyst. Other formulas of FCFF are as per below. DETAILED EXPLANATION OF FCFF LINE ITEMS NET INCOME - Net income is taken directly from the Income statement. It represents the income available to shareholder’s after taxes, depreciation, amortization, interest expenses and the payment to preferred dividends NON ...

... cash in the past, but may affect the forecast of future FCFF CHANGE IN WORKING CAPITAL - The working capital changes that affect FCFF are items such as Inventories, Accounts Receivables and Accounts Payable. This definition of working capital excludes cash and cash equivalents and short-term debt (notes payable and the current portion of long term debt payable). ...

... terminal value is added to the cash flow of the final year of the projections and then discounted to the present day along with all other cash flows. Terminal values can be calculated based on two methodologies: 1. Perpetuity value 2. Exit multiple. ...

... This approach uses the underlying assumption that the business will be valued on a market multiple basis at the end of year n. A value is typically determined as a multiple of EBIT or EBITDA. For cyclical businesses, an average EBIT or EBITDA over the course of a cycle is used rather than the amount in year n. When selecting a multiple, a normalized level should be used. In other words, an industry multiple should be applied which is adjusted to take into account cyclical variations, rather than applying a current multiple which can be distorted by industry or economic cycles. Multiples should typically be based on an analysis of comparable companies and/or transactions. Most models will incorporate both valuation approaches, and will often include sensitivities which show values at various discount rates, growth rates, and terminal multiples. It is imperative that you discuss relevant growth and terminal multiple assumptions with your team because what defines a reasonable range of parameters varies by company, ...

... It is always helpful to calculate the implied perpetuity growth rate and the exit multiple by cross linking each other. Resulting implied growth rate or the exit multiple should be reasonable comfort zone. ..