This document provides an overview of using a discounted cash flow model to value common stock. It discusses that:
1) Value is the monetary relationship between property and buyer/seller, while price is the amount paid which may not reflect true value.
2) Free cash flows to equity (FCFE) is considered the theoretical basis for common stock valuation as it measures the cash a company generates after investing for future growth and meeting obligations, unlike models based solely on dividends or earnings.
3) While FCFE provides an accurate measure of a company's market value, the actual market price of common stock may be higher or lower than the present value of FCFE depending on investor perceptions.
Valuation of Private vs. Public Companies. Private company valuations are discounted based on several risk factors associated with private sector investing, which results in a marked difference between the valuation of a privately held company, subsidiary or a division and a publicly traded corporation.
Assessing risk in a business has a lot to do with understanding the business' gearing (or leverage) ratio. This presentation takes highlights what you need to look for when analysing the ratio and some of the adjustments that sometimes have to be made.
Valuation of Private vs. Public Companies. Private company valuations are discounted based on several risk factors associated with private sector investing, which results in a marked difference between the valuation of a privately held company, subsidiary or a division and a publicly traded corporation.
Assessing risk in a business has a lot to do with understanding the business' gearing (or leverage) ratio. This presentation takes highlights what you need to look for when analysing the ratio and some of the adjustments that sometimes have to be made.
How Do Convertible Notes Work For Early-stage FinancingEquidam
What is the definition of convertible debt and how to use it in early-stage startup financing. You can also see the calculations we made using our Convertible Note Calculator.
To read more take a look at this article: https://www.equidam.com/practical-advice-pricing-convertible-note/
Compute your company valuation for free at https://www.equidam.com/
A superior new replacement to traditional discounted cash flow valuation models
In the aftermath of the financial meltdown, the models commonly used for discounted cash flow valuation have become outdated, practically overnight. To meet the demand for an authoritative guidebook to the new economy, internationally recognized expert Kenneth Hackel has written Security Valuation and Risk Analysis.
This allows for a sufficient tax shield to maximize the profitability of the buyout. By utilizing such leverage, we incur a great deal from the tax shield. Further, we would pay off the debt using our excess free cash flow to pay off the debt. By the end of the 5th year, we would sell the firm andgain from any excess value found within the firm.
How Do Convertible Notes Work For Early-stage FinancingEquidam
What is the definition of convertible debt and how to use it in early-stage startup financing. You can also see the calculations we made using our Convertible Note Calculator.
To read more take a look at this article: https://www.equidam.com/practical-advice-pricing-convertible-note/
Compute your company valuation for free at https://www.equidam.com/
A superior new replacement to traditional discounted cash flow valuation models
In the aftermath of the financial meltdown, the models commonly used for discounted cash flow valuation have become outdated, practically overnight. To meet the demand for an authoritative guidebook to the new economy, internationally recognized expert Kenneth Hackel has written Security Valuation and Risk Analysis.
This allows for a sufficient tax shield to maximize the profitability of the buyout. By utilizing such leverage, we incur a great deal from the tax shield. Further, we would pay off the debt using our excess free cash flow to pay off the debt. By the end of the 5th year, we would sell the firm andgain from any excess value found within the firm.
Yoo-hoo is a dying brand that was being neglected a far as a current campaign, and even their social media sites weren't being updated. Through quantitative and qualitative research, we were able to create a new campaign changing our target audience and using nostalgia as the overarching theme.
Działania m.st. Warszawy na rzecz lokatorów z budynków reprywatyzowanych oraz...Michał Olszewski
Prezentacja z sesji nadzwyczajnej Rady m.st. Warszawy 1 września 2016r. Prezentacja opisuje mechanizmy oraz efekty zastosowania systemowych rozwiązań skierowanych do lokatorów z budynków objętych "dekretem Bieruta". Dodatkowo zawarte są informacje o założeniach polityki mieszkaniowej Warszawy w latach 2007-2015 i 2016-2022.
The first chapter introduces us to Corporate finance is essential .docxoreo10
The first chapter introduces us to Corporate finance is essential to all managers as it provides all the skills managers need to; Identify corporate strategies and individual projects that add value to the organization and come up with plans for acquiring the funds. The types of business forms are; sole proprietorship, corporation and partnerships. A sole proprietorship form of business possesses different advantages and disadvantages. A partnership maintains roughly similar pros and cons of a sole proprietorship. A corporation is a legal entity that is separate from its owners and managers. Advantages include a smooth transfer of ownership, limited liability, ease of raising capital. The disadvantages include; double taxation, and a high cost of set-up and report filing. The chapter then deals with Objective of the firm, which is to maximize wealth. The final topic is an in-depth look at Financial Securities, which are markets and institutions.
In the second chapter, we are introduced to financial statements, Cash flow and taxes. Financial statements include; the Income statement and the Balance sheet. An income statement is a financial statement that shows a company’s financial performance regarding revenues and expenses, over a particular period, mostly one year. A balance sheet, on the other hand, is a financial statement that states a company’s assets, liabilities and capital at a particular point in time. Under the cash flow, the chapter covers on the Statement of cash flows, indicates how various changes in balance sheet and income statement accounts affect cash and analyses financing, investing and operating activities. A free cash flow shows the cash that an organization is capable of generating after investment to either maintain or expand its database. Under taxes, Corporate and personal taxes are well explained and the scenarios under which they apply.
Chapter Three analyzes Financial Statements. This analysis is broken down into; Ratio Analysis, DuPont equation. The effects of improving ratios, the limitations of ratio analysis and the Qualitative factors. Ratios help in comparison of; one company over time and one company versus other companies. Ratios are used by; Stockholders to estimate future cash flows and risks, lenders to determine their creditworthiness and managers to identify areas of weaknesses and strengths. Liquidity ratios show whether a company can meet its short-term commitments using the resources it has at that particular time. Asset management ratios exemplify how well an organization utilize its assets. Debt management ratios, leverage ratios as well as profitability ratios are explained.
The DuPont equation focuses on several issues. These are; Debt Utilization, Asset utilization and the Expense Control. Consequently, Ratio analysis has various problems and limitations. These include; Distortion of ratios from seasonal factors, various operating and accounting practices can distort comparisons and also it i ...
HA499 Capstone Project Facility WebsitesThese sites have the com.docxwhittemorelucilla
HA499 Capstone Project Facility Websites
These sites have the comprehensive data needed for all of your HA499 projects. The criteria included the Home page with ‘About Us’ containing demographic and statistical information about locations, services, community outreach, etc. The site would have a readily accessible Strategic Plan (some required a keyword search) and Annual Report (some required some investigation, which is why I copied the direct link). These sites were well designed, had pertinent information available in an organized manner. Most sites required some searching, but had the Strategic Plan, Mission Statement (Vision), and Annual Report readily available.
1 AtlanticGeneralHospital,Berlin,MD
http://www.atlanticgeneral.org/Main/Home.aspx
2 ClevelandClinic
http://my.clevelandclinic.org/default.aspx
3 HawaiiHealthSystemsCorporation
http://www.hhsc.org/
4 JohnHopkinsMedicine
http://www.hopkinsmedicine.org/
5 MayoClinic
http://www.mayoclinic.org/
6 MemorialSloan--‐KetteringCancerCenter
http://www.mskcc.org/
7 ScrippsHealth
http://www.scripps.org/
8 Seattle’sChildren’sHospital
http://www.seattlechildrens.org/
9 ShandsHospital--‐UniversityofFlorida
http://jax.shands.org/
10 St.Jude Hospital
www.stjude.org/
11 UniversityofNebraskaMedicalCenter/Monroe--‐MeyerInstitute
http://www.unmc.edu/
12 UniversityofRochesterMedicalCenter
http://www.urmc.rochester.edu/
chapter 2
Issues in Accounting for
Corporate Debt and Equity
Learning Objectives
• Be able to articulate the advantages and disadvantages of preferred stock as an alter-
native class of equity capital.
• Be familiar with the accounting for traditional notes payable arrangements.
• Understand the nature of bond financing.
• Be able to account for bonds, including use of the straight-line amortization technique
for bonds issued at a premium or discount.
• Be able to apply the unique accounting issues pertaining to bonds issued between
interest payment dates and for bonds retired before scheduled maturity.
• Be aware of accounting issues that relate to leases and other contractual commitments.
istockphoto
waL80281_02_c02_035-056.indd 1 9/25/12 1:02 PM
36
CHAPTER 2Section 2.1 Alternative Types of Capital Stock
Chapter Outline
2.1 Alternative Types of Capital Stock
Accounting for Preferred Stock
2.2 Long-Term Notes Payable
Level Payment Notes
Calculating the Amount of a Level Payment
2.3 Bonds Payable
Bond Pricing
Bond Features
Accounting for Bonds Payable Issued at Par
Accounting for Bonds Payable Issued at a Premium
Accounting for Bonds Payable Issued at a Discount
Alternative Approach to Amortization
Bonds Issued Between Interest Dates
Year-End Interest Accruals
Frequency of Interest Accruals
Debt Retirements
The financial accounting course acquainted you with the measurement and reporting aspects of common stock and short-te ...
This presentation covers the topic of equity compensation from two disparate perspectives. 1) the point of view of an exit planning specialist 2) the point of view of a companies looking for long term executive and broad-based equity compensation solutions.
Using the premier business computational tool to maximize wealth. Excel is used to make the two decisions related to wealth maximization: 1. the investment decision 2. the financing decision
FINANCIAL MANAGEMENT PPT BY FINMANDividend policy joseph agayatin&jezza deauna
FCFE_Part 1_10_23_13
1. Common Stock Valuation:
Fundamental Analysis Using A
Discounted Cash Flow Model
Presented by:
Allen D. Hahn, CFA, ASA, CMT
October 23, 2013
Introductions
Are we going to
have more formulas?
No….maybe 1
Framework for
using a Discounted
Cash Flow approach to
value common stock
Considerations
beyond formulas when
valuing common stock
Build Excel
Spreadsheet DCF
model
2. “Only a Fool thinks Price and Value are
the Same”
Value is never a fact but always an opinion of
the worth of an asset
Price is a fact; it is the amount asked, offered
or paid for an asset
2
Value is the
monetary relationship
between property and
buyer/seller
The term Value is
always qualified by
either market,
investment or
liquidation
Financial
capabilities,
motivations or special
interests often
influence price
The price paid for
an asset may or may
not have any relation
to the Value that
might be ascribed to it
by others
3. What are the Characteristics that Give
Common Stock Value ?
3
Works well on the
wall in a man-cave
Provides economic
benefits to its owners
It may have the
ability to be readily
transformed into cash
Can be grouped
with similar assets to
transform the
risk/reward profile of
a portfolio
Its appreciation is
unconstrained but its
loss is limited
As pro rata owner,
provides a vote on key
policies of the
company
A legalized form of
gambling
4. Aren’t the Prices of Common Stock
Available On-line?
Dispute Resolution
Gift and Estate Tax Filings
Acquisition
ESOP Annual Reporting
Reorganization in Bankruptcy Proceedings
Semi-liquid common stock
4
All companies do
not issue common
stock that is publicly-
traded
Private companies
have valuations
performed on common
stock for many
different purposes
The purpose of the
valuation defines the
“rules” of the
analysis…no one size
fits all
5. The Valuation Process
5
Understand the
business
Forecast company
performance
Select appropriate
valuation model
Convert forecasted
company performance
into an estimate of
value
$11,756,338 $11,756,338
$3,532,668
Accounting Balance Sheet Market Value Balance Sheet
Current Liabilities
$1,552,726
Intangible Assets
$50,000
Market Value
Equity
$11,706,338
Fixed Assets
$7,776,685
Other Assets
Interest Bearing
Long Term Debt
$6,670,945
Book Value
Fixed Assets
$46,360
Other Assets
$7,776,685
$11,706,338
$46,360
Interest Bearing
Long Term Debt
$6,670,945
$3,482,668
Current Liabilities
$1,552,726
Current Assets
$3,883,292
Current Assets
$3,883,292
6. The Song Remains the Same or Same
as it always was….
Suppose that a stock will pay three annual dividends of
$200 per year, and the appropriate risk-adjusted
discount rate, k, is 8%.
In this case, what is the value of the stock today?
6
Represents a
fundamental principle
in theoretical finance
Dividends are one
characteristic among
many attributes that
contribute to the value
of common stock
Strict interpretation
of formula can result
in material errors:
decay function
Courts,
practitioners and
security analysts
recognize this
representation as an
oversimplification of a
complex process
$515.42
0.081
$200
0.081
$200
0.081
$200
V(0)
k1
D(3)
k1
D(2)
k1
D(1)
V(0)
32
32
7. The Dividend Dilemma
The only cash flow an investor will receive
from holding a share of common stock is a
dividend
Actual dividends may vary greatly from a firm’s
dividend potential
When potential dividends exceed those
actually paid, using a model focused only on
dividends will under-estimate the market value
of the equity in a firm
7
Dividends can be
from continuing
operations, specially
declared or
liquidating; PIK
shares are not
considered cash flows
Behavior of firm
managers is
conservative, smooth
dividends and reserve
assets to meet
unforeseen future
contingencies or
investment
opportunities
Dividend Discount
Models are useful for
firms that pay
dividends close to
potential (REITs)
8. A Company’s Earnings is not a Proxy for
Its Dividend Potential
8
The income statement is
not a substitute for the
statement of cash flows
Earnings support a
company’s dividend
but do not represent
dividend potential
Earnings contain
non-cash revenues
and expenses
Earnings based
valuation models
ignore a firm’s
required capital
investment and
financing activities
A valuation model
that uses discounted
earnings is likely to
over estimate the
value of common
equity
9. Defining Potential Dividends as Free
Cash Flow to Equity (FCFE)
9
FCFE for a Levered Firm:
Net Income
+/- Non-cash items
+/- Changes in non-cash Working Capital
+/- Capital Investments
+/- Additional Borrowings or Repayment
= FCFE
FCFE is dividend
potential after
required investment
for future growth and
net debt obligations
If preferred stock
exists, preferred
dividends should also
be deducted
Definition implicitly
removes financial
discretion from firm’s
managers
Model
accommodates excess
cash and other non-
operating assets of the
firm as equity value
10. So Where Are We?…And, Are
We Almost There?
Free Cash Flows to Equity (FCFE) is the
theoretical basis for common equity valuation
FCFE is a more accurate measure of the
market value of a firm’s equity than PV models
based on dividends or earnings
The market price of common stock may be
more or less than the PV of FCFE
10
Establish the
theoretical basis for
cash flows in DCF
model