1. Corporate Valuation: A Guide for Managers and Investors
Phillip R. Daves
Michael C. Ehrhardt
Ronald E. Shrieves
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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
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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. 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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7. TVM’s Importance Mathematics: i.e., PV = $1/(1 + i)n
Financial Calculator: PV, FV, PMT, n, I
Excel: PV (Rate, Nper, Pmt, FV, Type)
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8. 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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9. Become an accountant? NO! But accounting understanding crucial.
So are Excel & research skills
Will use dozens of online sources of financial data
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10. Part 2: Capital Budgeting & Investment Analysis
Most important problem facing Mgmt today:
Finding or creating investment projects worth more than its costs.
This adds to shareholder value!
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