1. Corporate Valuation: A Guide for Managers and Investors
Phillip R. Daves
Michael C. Ehrhardt
Ronald E. Shrieves
University of Tennessee
(c) 2004
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2. Chapter 1: Why Corporate Valuation?
Financial decisions made every day
Investors—buy and sell decisions
Managers—implement operating decisions
Financial staff—evaluate acquisitions
Success or failure depends on whether value correctly identified
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3. Goals Provide investors and managers with knowledge to value a company
Use free cash flow valuation
Use non-proprietary Excel model
Online data sources—plus Thomson ONE-Business School Edition
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4. How this model might be used
Investors: identify undervalued stocks
Investors: to asses fund manager performance
Managers: to make better business decisions
Managers & investors perform scenario analysis
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5. Plan of attack
Finance requires circular approach: need to know finance to do financial analysis. Need to know how to do financial analysis to understand finance.
Text: start simply and slowly then increases level of detail.
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6. Outline Chapter 2—complete outline, apply to simple company, MPR
Chapters 3, 4—More advanced skills, more complicated company, ACME
Chapters 5-8—Still more advanced skills, more complicated company, Van Leer, Inc.
Chapters 9-13—Home Depot valuation
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7. Discounted Cash Flow (DCF)
DCF analysis: heart of valuation
Basic concepts
Present value
Discount rate– Weighted Average Cost of Capital (WACC)
Free cash flows (FCF)
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8. Present Value Present value = $1/(1 + r)
If r = 9%, PV = $1/(1.09) = $0.917
A dollar to be received in 1 year is worth 91.7 cents today if the discount rate is 9 percent.
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9. WACC and FCF
WACC: average rate of return all of company’s investors must earn
FCF: amount of cash flow available for distribution to all of firm’s investors (debtholders and shareholders) after making investments necessary to support growth plans.
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10. Become an accountant? NO! But accounting understanding crucial.
So are Excel & research skills
Will use dozens of online sources of financial data, including Thomson ONE-Business School Edition.
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