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INFORMATION NEEDED FOR VALUATION
A.Industry and Competition
B.Operations
C.Marketing and Sales
D.Human Resources
E.Historical Financial Information
F. Financial Projections
G.Sectors/Company/FIRM(Project/Assignment)
Corporate Valuation in Practice
 Relative Valuation
 Transaction Multiples
 DCF Valuation
 Common Practice
. IPO Relative Valuation
. M&A : . DCF Valuation
. Transaction Multiples
. Hybrid Model
. M&A .. Financial Buyer
. DCF Valuation with primary focus on IRR
DISCOUNTED CASH FLOW APPROACH
The discounted cash flow approach to valuing a firm
involves the following steps:
1. Analysing historical performance
2. Estimating the cost capital
3. Forecasting performance
4. Determining the continuing value
5. Calculating the firm value and interpreting the results.
Analysing Historical Performance
 Reorganising the financial statements to get a handle
over economic performance, instead of accounting
performance, in terms of net operating profit less
adjusted taxes (NOPLAT) and free cash flow (FCF).
 Getting a perspective on the drivers of FCF.
 Measuring and analysing the return on invested
capital (ROIC) to assess the ability of the company to
create value.
 Decomposing revenue growth into various
components.
 Assessing the company’s financial health and capital
structure.
Financial Statements of Matrix Limited for the Preceding Three
Years (Years 1-3)
1 2 3
Equity capital 60 90 90
Reserves & surplus 40 49 61
Debt 100 119 134
Total 200 258 285
Fixed assets 150 175 190
Investment - 20 25
Net current assets 50 63 70
Total 200 258 285
BALANCE SHEET

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Valuation

  • 1. INFORMATION NEEDED FOR VALUATION A.Industry and Competition B.Operations C.Marketing and Sales D.Human Resources E.Historical Financial Information F. Financial Projections G.Sectors/Company/FIRM(Project/Assignment)
  • 2. Corporate Valuation in Practice  Relative Valuation  Transaction Multiples  DCF Valuation  Common Practice . IPO Relative Valuation . M&A : . DCF Valuation . Transaction Multiples . Hybrid Model . M&A .. Financial Buyer . DCF Valuation with primary focus on IRR
  • 3. DISCOUNTED CASH FLOW APPROACH The discounted cash flow approach to valuing a firm involves the following steps: 1. Analysing historical performance 2. Estimating the cost capital 3. Forecasting performance 4. Determining the continuing value 5. Calculating the firm value and interpreting the results.
  • 4. Analysing Historical Performance  Reorganising the financial statements to get a handle over economic performance, instead of accounting performance, in terms of net operating profit less adjusted taxes (NOPLAT) and free cash flow (FCF).  Getting a perspective on the drivers of FCF.  Measuring and analysing the return on invested capital (ROIC) to assess the ability of the company to create value.  Decomposing revenue growth into various components.  Assessing the company’s financial health and capital structure.
  • 5. Financial Statements of Matrix Limited for the Preceding Three Years (Years 1-3)
  • 6.
  • 7. 1 2 3 Equity capital 60 90 90 Reserves & surplus 40 49 61 Debt 100 119 134 Total 200 258 285 Fixed assets 150 175 190 Investment - 20 25 Net current assets 50 63 70 Total 200 258 285 BALANCE SHEET