Asset Valuation Essay

15561 WordsJan 1, 201363 Pages
Valuation Valuation 1 Oct 24, 2008 Contents • Introduction – Where Value Comes From • Discounting Basics • Overview of Alternative Valuation Methods • Valuation Using Multiples • Valuation Using Projected Earnings • Case Studies Valuation 2 Oct 24, 2008 Valuation, Decision Making and Risk Every major decision a company makes is in one way or another derived from how much the outcome of the decision is worth. It is widely recognized that valuation is the single financial analytical skill that managers must master. • Valuation analysis involves assessing  Future cash flow levels, (cash flow is reality) and  Risks in valuing assets, debt and equity • • Measurement value – forecasting and risk assessment -- is a very complex and difficult problem. Intrinsic value is an estimate and not observable Reference: Chapter 6 Valuation 3 Oct 24, 2008 Valuation Overview Valuation is a huge topic. Some Key issues in valuation analysis. Cost of Capital in DCF or Discounted Earnings Selection of Market Multiple and Adjustment Growth Rates in Earnings and Cash Flow Projections Terminal Value Method and Calculation  Use several vantage points  Do not assume false precision Valuation 4 Oct 24, 2008 Tools for Valuation • Financial Models: Valuation model with project earnings or cash flows • Statistical Data: Industry Comparative Data to establish Multiples and Cost of Capital • Industry, company knowledge and judgment Knowledge about risks and economic outlook to assess risks and value drivers in the forecasts • Valuation should not be intimidating Valuation 5 Oct 24, 2008 Valuation Basics • A Company’s value depends on: Return on Invested Capital Weighted Average Cost of Capital Ability to Grow • All of the other ratios – gross margins, effective tax rates, inventory turnover etc. are just details.

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