1. Forecast free cash flows over an explicit projection period, typically 5-10 years. 2. Estimate a terminal value at the end of the projection period. 3. Discount the future cash flows and terminal value back to the present using the firm's weighted average cost of capital (WACC). 4. Add up the present values to get the firm's value.

1. By
Satish kumar.L
CFA

2.  Equity Analysis & Valuation
 IPO’S (Deal underwriting )
 Credit rating
 Mergers &acquisitions
 Portfolio management
 Ratio analysis
 Reports

3. FORECAST METHODS
TIME PERIODS Balance sheet
&
Funding options Income statement
accounts Pricing
(DCF,
WACC Ratio
DDM,
Analysis&
Work sheet FCFF,
DEBT SCHEDULER FCFE,APV
Reports
Accounts spread Etc…
Sheet Methods)
What if analysis (Mergers & acquisitions)
Currency translator Consolidator
Tax & valuation options

7. HSF
Select .ALC file
Time period set up wizard
Define no of Base Years
Forecasting years
Fiscal years
EXTENDED SET UP
Time periods
DEAL PERIODS
Actual periods
Summary information

8.  The Accounts spreadsheet displays accounts in financial models.
 You enter data, company and account descriptions, scenario names, time period headings,
account notes, and subaccount son the Accounts spreadsheet.
 Financial data consists of historical results and forecast assumptions.
 If some accounts have similar properties, you bulk manage them with account groups to lower
administrative overhead.
 Input accounts : manually you can enter Historical & forecast periods
 Calculated accounts : automatically calculated or from formulas ,calculated options EX : EBIT ,
EBITDA , EBT , PAT
 With subaccounts, you can create additional accounts aggregating into total accounts, and user
defined accounts.
 You create subaccounts for additional input detail in main accounts
 We can Add/delete/modify subaccounts in accounts spread sheet.
 Sub accounts can be subtotaled using subtotal option.
 Auto numbering :You use Auto number to create multiple subaccounts in batch.
 Renumbering :We use Renumber Subaccount (single/multiple )to change a subaccount number
and all of its references in the model, freeing previous numbers for reuse.

9. CURRENCY ACCOUNTS
Custom ratios & Debt covenant
34 –finance ratios
10 –customized ratios- to calculate OWN ratios

10. Main accounts
Total inventories -2040.00.000
Related Accounts
Total change in inventories-2040.01.000
Sub accounts
Raw materials- 2040.00.010
Work-in progress-2040.00.020
Finished goods -2040.00.030

11. User-defined&
Main accounts subaccounts Memo accounts Debt covenant
accounts
Calculate & store data
For formulas other 1)
Add/delete/modify Accounts . Financial ratios(34)
Subaccounts in accts Means assign relation ship Custom ratios(10)-to
Enter input values Spread sheet Calculate own
Account description Between memo accounts
1)Create multiple & other accounts . (using free form ) ratios
Data format accounts in a batch
Specify annotation( Example : annual sales based
(auto Numbering) On price (memo account-1)& 2)Debt covenant-establish
For reports 2) To change the sub measures , testing an entity’s
Quantity
Account no & its reference (memo account-2 ) Ability to meet performance
Number (renumbering) Create free form sales for sales standards
Account groups Data view Access control
Data views filter and manipulate the
amount of data displayed on the
Accounts view, and you select them
To manage accounts in a bulk from Data view
Three default data views Access Control enables defining group or
Example : you want to Access Names, establishing passwords,
Standard-displays standard
manage all and creating restrictions for local files.
accounts.
Income statements Input Only—displays input You can copy group and copy access
In a group with data accounts. privileges from other groups
Output Only—displays output
accounts.

13. As Actual Value
Enter data as the actual value as defined by the default currency units.
Growth Rate
Enter data as an annual growth rate. For example, for Sales growth of 10% per year, enter a 10 for the forecast period
input.
Growth Rate (Year over Year)
Enter data as a growth rate over the same period one year prior. For example, if January 2003 Sales are to be 5% higher
than January 2002 Sales, enter 5 in January 2003.
Percent of Another Account
Enter data for one account as a percent of another account (Associated Account) in the same period. For example, for
Cost of Goods Sold as 46% of Sales, enter 46 for the forecast period input.
Percent of Prior-Period Account
Enter data for one account as a percent of another account in the prior period. For example, Depreciation Expense can
be entered as a percent of the prior-period ending balance of Fixed Assets.
Percent of Change in Another Account
Enter data for one account as a percent of the increase in another account. For example, the Increase in Accounts
Receivable can be entered as a percent of the change in Sales.
Percent of Average Account :
Enter data for an account as a percent of the average value of another account during the current and prior periods. This
option can be used to forecast interest based on the average debt balance.

14. Days
Enter data for an account as the number of days (typically of sales or cost of goods sold) which this item represents. It
is most commonly used for working capital balances, such as receivables and payables forecasting.
Example : Accounts Receivable balance is calculated as follows in each forecast period:
(Input for Days / No. of Days in Period) * Sales = Accts. Receivable Balance.
Turns
Enter data for an account as the number of turns (how often the balance turns over) this item represents. This method is
most commonly applied to inventory forecasting.
Absolute Multiple of Another Account
Enter data for one account as an absolute multiple of another account (Associated Account) in the same period. This
method is primarily used for price/quantity forecasting
Default Multiple of Another Account
Enter data for one account as a default currency unit multiple of another account (Associated Account) in the same
period. This method is also primarily used for price/quantity forecasting.
Free Form Forecasting Methods
The other forecasting method available to users is the freeform method where the users can model out the forecast
methods using formulas that could include accounts, time periods and a slew of other functions Min, Max etc.
Forecasting using Grid Pricing
You use Grid Pricing to model varying interest rates over time by incrementing/decrementing rates based on
company performance against a metric.

15.  Entering Gross Fixed Assets
 Entering gross Fixed Assets in Historical periods .
 Forecasting gross Fixed assets
 Accumulated Depreciation.
 Interest Accounts
 Tax Rates
 Taxable Income
 Deferred Taxes
 Historical Averages

18. Funding options specify the way how to manage cash Surplus/Deficit

19.  Funding options is a sophisticated but easy-to-use feature that helps you
optimize your capital structure and treasury strategies, thereby lowering your
financing costs.
 It provides a variety of methods for specifying the way cash surpluses and
deficits are treated in your model such as debt borrowing and repayments,
dividend payments and share issues or repurchases
 Funding Options enable you to pay off debt accounts with cash from surplus
accounts.
 You specify which surplus accounts go to which debt accounts, and the order
they should be repaid.
 You can specify fund sources the company should borrow from in paying
deficits.
 You can identify affordable dividends, handling of common and preferred
stocks, and issuance or repurchase of shares.

23. Standard method Target capital
Common Method: structure method:
Common attributes in funding
Standard method with a
options
surplus :
Zero Based :
for an account to be set to zero Enter accounts in the Apply
before the funding sequence Cash Surplus to... list to The target capital structure method
begins—the account starts with a achieve: manages the priority of the
zero balance.
Increasing Marketable category surpluses and deficits in
No Maximum : Securities
for an account to accept or fund Repayment of Debt
each of up to three funding
with no cap or maximum. Reduction in Revolving categories. When using the target
Balances capital structure, you specify a
Specify Minimum if an account to
requires a time series of Retirement of Preferred Stock target debt capacity and, if needed,
assumptions when the balance of Acquisition of Treasury Stock a target preferred capacity for your
the funding account should not go (Common Shares and New
below. Common Shares planning entity. Funding options
enable you to specify the order of
In Minimum change., enter a funding accounts to achieve target
minimum amount that the account Standard method with a deficit category levels.
must change to be part of the :
funding. If the minimum change is Enter accounts in the Apply
not met, the account is not utilized Target capital method with a
funding surplus or deficit. The Cash Surplus to... list to
surplus :
value entered should reflect the achieve:
Default Currency of the file—for Decreasing Marketable Affordable dividend.
example, if the file is in Thousands Securities Repurchase of stock
of Dollars, a 10 would reflect a
minimum change of $10,000. Increase in Revolving
Balances Target capital with a deficit :
From funding options we can Issuance of Preferred Stock Issuing new shares –issuance of
Modeling Revolver and Term Issuance of Common Stock
Accounts Using forecast methods common stock
tool . Sale of Treasury Stock Sale of treasury stock

25. Borrowing Activity:
Repayment activity:
1)HSF analyzes the Debt
borrowing capacity
2) Then allows you to
create Fixed & variable Debt
instruments 1) Calculates the
3) Calculates Bond amortization schedule
premium/discount/issuing 2)Decide no of years to
expenses repay
4)Manage cash flows 3) Setting principal
involved in debt instruments amount/schedule
such as Amortization payments/interest rates

30.  Crystal Ball is for the decision-maker, from the
businessperson analyzing the potential for new markets to
the scientist evaluating experiments and hypotheses.
 Modeling : A model is a combination of data and
logic constructed to predict the behavior and performance of
business process or service. Crystal Ball works with
spreadsheet models, specifically MS Excel spreadsheet
models.
 Simulation : The application of models to predict future
outcomes with known and uncertain inputs.

31. Crystal Ball-Screen shots
egic Finance

33.  Perpetuity –method :expects continuous growth
 Growth in perpetuity : CAGR
 Value growth duration : stages in
Maturity/decline/constant growth
 P/E & M/B ratios : used for comparable firms
approach
 Liquidation value : estimate the worth at the end of the
period

35.  A valuation method used to estimate the attractiveness of an
investment opportunity. Discounted cash flow (DCF) analysis uses
future free cash flow projections and discounts them (most often
using the weighted average cost of capital) to arrive at a present
value, which is used to evaluate the potential for investment. If the
value arrived at through DCF analysis is higher than the current
cost of the investment, the opportunity may be a good one.

36. Free cash flow to the firm(Net cash flow ) = EBIT (1 – t) + Depreciation
&Amortization – Capital expenditure – Change in working capital.
DCF FCFE
The cash flow to equity model is
used to value only the equity
FCFE APV
stake in the business. The cash flow to firm The adjusted present value
approach is used to compute approach is used to value each
the value of the entire firm,
=Net profit which includes cash flows
claim on the firm separately. In
this approach, the firm is valued
–(capital exp-
FCF(1+g) available to all the suppliers of in pieces, beginning with
Depreciation)(1-debt capital to the firm like the operations and adding the effects
----------- financing ratio)
equity holders, bondholders
and preferred stock holders.
on value of debt and other equity
claim holders.
(ke-g) -(changes in net
working capital (1-debt Value of the firm =Value of
financing ratio) all equity financed firm + PV
of tax benefits
=FCF – Expected bankruptcy costs
Terminal value : - Terminal value:-
No terminal (Last year value * g ) (Last year value *g)
Terminal Value:
value --------------------------- --------------- (EBIT(1-T)
(Ke-g)(1+g)^ n (WACC-g)(1+g)^n --------------
(Discount factor –g)
Discounted at Discount at
WACC & Real Discounted at cost Discounted at cost
of capital (WACC) Un -levered cost of
rate of equity (Ke) equity