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 cashflows.
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 much further than the introductory course and considers important contemporary techniques including the application of the techniques in mergers and acquisitions, understanding EVA, the application of CFROI and the use of real option analysis.
Case studies from recent deals 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.
Participants will be required to bring a laptop to the course and will be provided with Excel models which will be used during the course.
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
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
- Is WACC dead given the capital raising ability of modern firms?
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
Using EVA and CFROI Based Techniques
- Correlation to DCF model
- Calculation of NOPAT and capital
- Typical adjustments for EVA calculation
- 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