Lets run through the three popular approaches to valuing companies, both private and public. We introduce asset-based, relative and cash flow based valuation methods using case study examples. We discuss the concept of price, value and worth and identify the value drivers financial analysts use to determine value.

1. Introduction to Business Valuation

2. Learning Outcomes
• Applications of Valuation
• Equity and Enterprise Value
• Asset Based Valuation

3. •Value
•Price
•Worth
Introduction To Valuation

4. Major resource allocation decisions are underpinned by an
assessment of what projects are worth.

5. The valuation of the business may not be equivalent to the
actual transaction price.
Price is what you pay. Value is what you get.

6. •Raising Money for Your Own Business
•Valuing a Company
•Evaluate New Projects
•Make Stock Recommendations
Applications of Value
•Saving for your kids’ education
•Pension Planning
•Your Mortgage
•Buying or Leasing a Car
•Deciding on an MBA
Application in business Application in life

7. •IPOs and sale of equity
•Mergers
•Acquisitions
•Reorganisations
•Spin-offs
•Liquidations
Applications of Value

8. LEGAL TAX
Litigation Tax Regimes
Collateral Corporate Structure
Insurance claims Capital Structure
Employee incentive plans
Applications of Value

9. Three Valuation Methods
•In asset based valuation, you value a business by valuing its
individual assets. These individual assets can be tangible or
intangible.
•In intrinsic valuation, you value a business based upon the
cash flows you expect that business to generate over time.
•In relative valuation, you value a business based upon how
similar businesses are priced.

10. Three Valuation Methods
• Accounting value: You could use the book value of the
asset as a proxy for the estimated value of the asset.
• Intrinsic value: Estimate the expected cashflows on each
asset or asset class, discount back at a risk adjusted
discount rate and arrive at an intrinsic value for each asset.
• Relative value: Look for similar assets that have sold in the
recent past and estimate a value for each asset in the
business.

11. Enterprise Value
Enterprise Value is the market value of a company’s:
• Net operational assets +
• Value of its future growth opportunities +
• Intangible assets

12. Firm Value Using the Balance Sheet
Debt
Equity
Cash
Operating
Assets

13. Enterprise Value
=
Debt
Equity
Cash
Operating
AssetsEnterprise
Value is the
market value of
the Balance Sheet
+
+

14. Equity Value
Equity value is the market value of a company’s shares to
its owners or shareholders.

15. Equity Value
-
Debt
Equity
Cash
Operating
Assets
Equity Value is
market value of
assets minus
market value
of Debt
+
=

16. Equity & Enterprise Value
Sales
-COGS
Gross Profit
-Operating Expenses
Operating Income (EBIT)
-Interest Expense / Income
Profit before Tax
-Tax
Profit after Tax (Net Income)
Enterprise
Value
Net Debt / Cash
Equity Value

17. Calculating Enterprise Value
Enterprise Value = Equity Value + Total Debt - Cash
Net DebtShare price * No. shares outstanding

18. Calculating Enterprise Value
Enterprise Value = Equity Value + Net Debt

19. Calculating Equity Value
Equity Value = Enterprise Value - Net Debt

20. Asset based Valuation
Valuing an entity based on its net assets (shareholders’
equity): total assets less total liabilities

21. When is Asset-based Valuation Relevant?
• Sum of the parts: If a business is made up of individual divisions or
assets, you may want to value these parts individually.
• Liquidation: If you are liquidating a business by selling its individual
components.

22. Asset-based Valuation
Relevant Sectors
•Investment Companies (eg. Real Estate, investment funds)
•Financial Services (eg. Banks)
•Natural Resources Companies

23. Case Study: Shaftesbury PLC Annual Report

24. Case Study: Shaftesbury PLC Annual Report
Considerations that need to be made when using the asset
approach are:
• Premise of Value
• Control
• Marketability
• Going concern