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Agenda
Valuation Approaches
Free-Cash Flow Models
Weighted average cost of capital
Application: Derive Enterprise Value of Pura
Limited
What is valuation
Why valuation?
Valuation Approaches
Determined by a
stream of
forecasted cash
flows
Benchmark
against other
comparable
companies
Based on book
values in
balance sheet
Weakness
Applicability
Based on discounted
future cash flows
Most complex
technique
Large range of
assumptions
Focus on true
economic drivers of
value
Understanding the
value of a business
and then pricing in
synergies
Prone to forecasting
error
Weakness
Applicability
Straightforward
technique
Relies wholly on
available data of
comparable
companies
To compare and
contrast the relative
values of investments
within a portfolio
Broad assumptions
made
No detailed analysis of
intrinsic drivers of
value
Difficult to apply to
privately owned entity
Benchmarking the
relative value of
organisations against
each other
Uses market based
factors instead of
analyst own estimate
: RM 100 mil
Earnings multiple
Weakness
Applicability
May significantly
undervalue a business
(intangibles value are
often ignored)
Obtain preliminary
view of the base value
of a business
especially in a
divestment exercise
Has an element of
certainty - based on
assets that are owned
Step-by-Step Guide
Step 1: Value the business/ operating assets
Step 2: Value the company
Step 3: Value the companys equity
Step 4: Find the fair value per share
Terminal Value
Firm in steady state
Y0
Y1
Y2
Y3
Y4
Y5
Cost of Equity
Definition:
cost of equity (ke)
= rate of return that shareholders require on their investment in an
organisation
Application:
Financial Modelling Basics Steps
Big Step
Baby Steps
1. Project income
statement
i.
ii.
iii.
2. Project balance
sheet
i.
ii.
iii.
i.
ii.
iii.
4. Balancing
i.
Thank you