1. Valuation FIN 449 Michael Dimond

2. Michael Dimond School of Business Administration Damodaran has resources online http://pages.stern.nyu.edu/~adamodar/ His spreadsheets are not always as helpful as you might want… An example of a valuation summary he did in 2008

3. Michael Dimond School of Business Administration What Damodaran’s valuation summary looks like: September 2008

4. Michael Dimond School of Business Administration What Damodaran’s valuation summary looks like: October 2008

5. Michael Dimond School of Business Administration Bear in mind, these were a summary. We will ultimately want something more detailed for a working document.

6. Michael Dimond School of Business Administration What does the DCF Model look like? What drives the figures? How sensitive are they to basic inputs?

7. Michael Dimond School of Business Administration To start, compute historic FCFF & FCFE for the past 5 years FCFF = OCF - ΔFA - ΔNWC FCFE = FCF - ΔDebt - Interest - PfdDiv How accurate would it be to extrapolate the future cash flows from the past FCFE figures? In other words, can we simply assume FCFE will grow X% forever? Here are the historic FCFE for Nautilus: Instead, we project the drivers of these figures for the future. Compute FCFF & FCFE based on the forecast figures

8. Michael Dimond School of Business Administration What drives the cash flow figures

9. Michael Dimond School of Business Administration Be careful of your methods

10. Michael Dimond School of Business Administration What does the DCF Model look like? What drives the figures? How sensitive are they to basic inputs?

11. Michael Dimond School of Business Administration Next Week Exam (Tuesday) Valuation #1

12. Michael Dimond School of Business Administration Next week: Begin Valuation #1 Dynamic, working spreadsheet for the company‘s financials This should do the arithmetic for you so you can concentrate on the thought process Build your own. Do not use someone else's work. Capture the previous 5 years –SEC has some data available as Excel document, company website may have more –Use amended figures if offered Compute historic FCFF & FCFE for the past 5 years –FCFF = OCF - ΔFA - ΔNWC –FCFE = FCF - ΔDebt - Interest - PfdDiv Project the drivers of these figures for the future. –How do we know what those figures will be?

13. Michael Dimond School of Business Administration Financial Analysis Financial analysis will answer questions regarding a firm’s past, present and future situation, including –How profitable is the company? –Did earnings meet analyst forecasts? –How strong is the company’s financial position? –What are the firm’s sources of profitability? –Does the company have the resources to succeed and grow? –What limitations to growth exist? –Is the firm making good use of assets? –Does the company have resources to invest in new projects? –What is the company’s future earning power? –How does capital structure affect return?

14. Michael Dimond School of Business Administration Horizontal & Vertical Analysis Each line item can be represented as % of Sales & % of Assets Growth over time Try to pick the most relevant line items What other ratios are helpful to understanding the company? Check the class website for my slides on basic ratio analysis