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MCF twitter presentation for 15.03.10

MCF twitter presentation for 15.03.10

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    Presentation Mcf Presentation Mcf Presentation Transcript

    • MCF 15.03.10 Assignment
      • Group #???
        • Vi Kwon Dong
        • Zichella Giulio
        • Marina Kuznecova
        • Saida Hakkouni
        • Lucia De La Cruz
    • 1. Two types of valuation: Relative Valuation and Absolute Valuation
      • 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…
      • 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?
    • 2. Discounted Cash Flow (DCF) is really important
      • 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).
      • Two possible choices: Invest (NPV >0) or do not invest (NPV<0)
      • Does the DCF give us a complete view of value for projects ?
    • 3. You mostly use the DCF method for older companies
      • Yes! More historical data available make dcf analysis easier to use and more accurate.
      • BUT, companies with deep pockets would prefer to use a wider investment analysis (e.g. Luehrman’s Option Space)
      • DCF is also about cash flows…
    • 4. Critical success Factors: Launch product, reach cash flow break even, ensure sales oriented management.
      • Reaching at least the cash flow break even (EBDAT=0) is the key objective for companies (e.g. survival, investors)
      • Sales oriented mgmt will help reaching the CF Breakeven… focusing, for example, on value for customers and cash burn/build rates!
    • 5. With cash being king - you want to know your &quot;burn rate&quot; (avg. monthly cash burn) and &quot;runway&quot; (remaining liquidity)
      • Cash Burn Rate : { OPEX + Interest+ Tax + Increase Inventory- ∆ payables and accrued liabilities + CAPEX} average in one month
      • Cash burn basically are negative cash flows: if cash is king, we should focus on those.
      • Runaway : Remaining liquidity / Burn Rate
      • Investors are very interested in knowing the firm’s capacity of facing short term liquidity problems (e.g. Statement of Cash Flows).
    • 6. Value: ZYB - a mobile phone backup solution with zero revenue bought by Vodafone
      • Actual cash flows analysis is not “the end of the story”…
      • “ 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)
      • A good example of an exit strategy…
    • 7. Develop an exit strategy towards either a trade sale or an ipo
      • Different approaches to face a drifting and challenging environment (e.g. decrease in value, increasing general risk)
    • 8. Typically the CEO should be leading the search for capital and investors
      • Well… it depends…
      • CEO-Entrepreneur, with focus on controllability, would be more likely to lead the search
      • CEO-Manager, with focus in aligning/balancing different interests, would be more likely to cooperate with other internal-external stakeholders of the company
    • 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.
      • 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.
      • 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.
    • 10. Reality can be a bitch
      • Reality challenges us in many ways:
      • Ratios and formulas may be at least “misleading” if used alone… at worst, killers…
      • We struggle to predict future Cash Flows, interest rates, future sales… but things often change in unpredicted ways…
      • 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.
      • Employees (experience/talent) matter! Especially in implementing and realizing successful IPO/exit strategies
    • THANK YOU