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Valuation Concepts and Methods: Chapter 1: Introduction

The document discusses various concepts and methods related to valuation. It defines valuation as estimating an asset's value based on future investment returns, comparisons to similar assets, and liquidation proceeds. It then outlines four common valuation techniques: comparable company analysis, discounted cash flow analysis, precedent transaction analysis, and leverage buyout analysis. Each technique is briefly described. Finally, the typical valuation steps for each technique are listed, such as finding comparable companies, estimating cash flows, and determining relevant valuation multiples.

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217 views9 pages

Valuation Concepts and Methods: Chapter 1: Introduction

The document discusses various concepts and methods related to valuation. It defines valuation as estimating an asset's value based on future investment returns, comparisons to similar assets, and liquidation proceeds. It then outlines four common valuation techniques: comparable company analysis, discounted cash flow analysis, precedent transaction analysis, and leverage buyout analysis. Each technique is briefly described. Finally, the typical valuation steps for each technique are listed, such as finding comparable companies, estimating cash flows, and determining relevant valuation multiples.

Uploaded by

harley_quinn11
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Valuation

Concepts and
Methods
Chapter 1: Introduction
Topics
01 What is Valuation?

02 Valuation Techniques

03 Valuation Steps

04 Valuation Methods
Valuation
According to CFA institute, it is an estimation
of an assets’s value based on the following:
• Future investment returns
• Comparisons with similar assets
• Liquation proceeds
Valuation is …

Valuation  process of determining the


present value of a company
Buying and or an asset
Selling  useful to determine the fair
value of a security, which is
Partnership determined by what a buyer
Dissolution
Taxation is willing to pay a seller
 impacted by corporate
earnings or economic events
Loans that force analysts to retool
their valuation models
Valuation Techniques
Comparable Company Analysis (Public Comps)
Evaluating other, similar companies, current valuation metrics, determined by
market prices, and applying them to the company being valued.

Discounted Cash Flow Analysis (DCF)


Valuing a company by projecting its future cash flows and then
using the Net Present Value (NPV) method to value the firm.

Precedent Transaction Analysis (M&A Comps)


Looking at historical prices to get a range of valuation multiples.
Attempts to arrive at a “control premium” paid by an acquirer.

Leverage Buyout/“Ability to Pay” Analysis (LBO)


Valuing a company by assuming the acquisition of
the company via a leveraged buyout
Valuation Techniques

Comparable Discounted Cash Precedent Leverage


Company Analysis Flow Analysis Transaction Buyout/“Ability
(Public Comps) (DCF) Analysis to Pay” Analysis

 easiest to perform  get the value in the  require the specifics  typically used by
 requires publicly most direct of a prior “financial sponsors”
traded securities manner acquisition/ (private equity
for estimates  company’s worth divestiture deal firms)
 best used of a is equal to the  when a majority  uses borrowed
minority (small, or current value of stake is purchased, capital (debt
non-controlling) in the cash it will the buyer assumes financing) to fund
a company generate in the control of the the acquisition of
future acquired entity the company
Valuation Steps
Steps: Steps: Steps: Steps:
 Find COMPARABLE  Estimate the  Selecting the  Purchase price and amount
companies discount rate of debt and equity
Universe of  Listing sources of finance
 Determine  Estimate the current Transactions and types of debts available
RELEVANT valuation cash flow to equity  Locating the  Build projections
multiple  Estimate a growth Necessary Financials  Calculating cash flow
 VALIDATE key rate(s) to estimate  Spreading the Key
 Analyze Repayment
fundamental metrics structure
future cash flows Trading Multiples  Exit
 Populate worksheet  Compute the firm’s  Determining Valuation  Calculate IRR on initial
equity value investment

Comparable Discounted Leverage


Company Cash Flow Precedent Buyout/“Ability
Analysis Analysis Transaction to Pay”
(Public Comps) (DCF) Analysis Analysis
Valuation Methods
01 02 03 04 05
Asset Historical
Valuation Earnings
Relative Future Discount
Valuation Maintainable
- valuing Valuation Earnings Cash Flow
assets
- compares
Valuation Valuation
include - A business’s
gross income, the value of
tangible and your
- to calculate, - takes the
ability to it needs to
intangible business’s business’s
repay debt, evaluate its
items. and assets to the future net
sales,
- uses the capitalization value of expenses, cash flows
book or of cash flow similar assets profits, and and discounts
market value or earnings and gives you gross profits them to
of assets determines its a reasonable from the past present day
current value. asking price three years values
Thank you

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