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MCF twitter presentation for 15.03.10

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Presentation Mcf

  1. 1. MCF 15.03.10 Assignment <ul><li>Group #??? </li></ul><ul><ul><li>Vi Kwon Dong </li></ul></ul><ul><ul><li>Zichella Giulio </li></ul></ul><ul><ul><li>Marina Kuznecova </li></ul></ul><ul><ul><li>Saida Hakkouni </li></ul></ul><ul><ul><li>Lucia De La Cruz </li></ul></ul>
  2. 2. 1. Two types of valuation: Relative Valuation and Absolute Valuation <ul><li>Relative valuation : It is about comparing certain financial ratios or multiples, such as the price to book value, price to earnings, EV/EBITDA, etc., of the equity in question to those of its peers. BUT… based on historical data… </li></ul><ul><li>Absolute Valuation : It is about the value that generates positive cash flows to the owner calculating the present value of those cash flow (DCF and NPC). BUT… what about DCF as a tool of valuation? </li></ul>
  3. 3. 2. Discounted Cash Flow (DCF) is really important <ul><li>Of course, it is: Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management and valuation for firms (EV). </li></ul><ul><li>Two possible choices: Invest (NPV >0) or do not invest (NPV<0) </li></ul><ul><li>Does the DCF give us a complete view of value for projects ? </li></ul>
  4. 4. 3. You mostly use the DCF method for older companies <ul><li>Yes! More historical data available make dcf analysis easier to use and more accurate. </li></ul><ul><li>BUT, companies with deep pockets would prefer to use a wider investment analysis (e.g. Luehrman’s Option Space) </li></ul><ul><li>DCF is also about cash flows… </li></ul>
  5. 5. 4. Critical success Factors: Launch product, reach cash flow break even, ensure sales oriented management. <ul><li>Reaching at least the cash flow break even (EBDAT=0) is the key objective for companies (e.g. survival, investors) </li></ul><ul><li>Sales oriented mgmt will help reaching the CF Breakeven… focusing, for example, on value for customers and cash burn/build rates! </li></ul>
  6. 6. 5. With cash being king - you want to know your &quot;burn rate&quot; (avg. monthly cash burn) and &quot;runway&quot; (remaining liquidity) <ul><li>Cash Burn Rate : { OPEX + Interest+ Tax + Increase Inventory- ∆ payables and accrued liabilities + CAPEX} average in one month </li></ul><ul><li>Cash burn basically are negative cash flows: if cash is king, we should focus on those. </li></ul><ul><li>Runaway : Remaining liquidity / Burn Rate </li></ul><ul><li>Investors are very interested in knowing the firm’s capacity of facing short term liquidity problems (e.g. Statement of Cash Flows). </li></ul>
  7. 7. 6. Value: ZYB - a mobile phone backup solution with zero revenue bought by Vodafone <ul><li>Actual cash flows analysis is not “the end of the story”… </li></ul><ul><li>“ The acquisition of ZYB is a further advance in the implementation of Vodafone's Total Communications strategy which is delivering new revenue growth around fixed broadband, mobile advertising and a rich set of internet services that integrate the mobile and PC customer experience . ZYB fits into this strategy by enhancing the range of communications services Vodafone can provide to its customers” (Vodafone website, underlines added) </li></ul><ul><li>A good example of an exit strategy… </li></ul>
  8. 8. 7. Develop an exit strategy towards either a trade sale or an ipo <ul><li>Different approaches to face a drifting and challenging environment (e.g. decrease in value, increasing general risk) </li></ul>
  9. 9. 8. Typically the CEO should be leading the search for capital and investors <ul><li>Well… it depends… </li></ul><ul><li>CEO-Entrepreneur, with focus on controllability, would be more likely to lead the search </li></ul><ul><li>CEO-Manager, with focus in aligning/balancing different interests, would be more likely to cooperate with other internal-external stakeholders of the company </li></ul>
  10. 10. 9. Investors want to be close (geo) to their investments and longer tradition for VCs in the US. Makes more sense to be in the home market. <ul><li>Proximity has advantages: it is less risky for VCs to be in the same geographical environment as the firm they are investing in (easier to calculate/manage risk). The US historical trend confirms this. </li></ul><ul><li>BUT there are exceptions: those who invest abroad can benefit from new possibilities and projects (e.g. US VCs investing in Nordic companies). These advantages can more than counterbalance the disadvantages of physical distance. </li></ul>
  11. 11. 10. Reality can be a bitch <ul><li>Reality challenges us in many ways: </li></ul><ul><li>Ratios and formulas may be at least “misleading” if used alone… at worst, killers… </li></ul><ul><li>We struggle to predict future Cash Flows, interest rates, future sales… but things often change in unpredicted ways… </li></ul><ul><li>Customers (market) matter! As the example of ZYB shows, financial decisions should focus also on customer perceived value: this issue is full of subjectivity but at the same time is extremely relevant. </li></ul><ul><li>Employees (experience/talent) matter! Especially in implementing and realizing successful IPO/exit strategies </li></ul>
  12. 12. THANK YOU
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