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Week 5

건국대학교 벤쳐전문기술. Week 5. 기업가치분석 (Valuation). Week 5. Why value the Value What is DCF DCF Case Study. Valuation _ Why value the Value?. Why value the Value  Broadened acceptance of Shareholder Value

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Week 5

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  1. 건국대학교 벤쳐전문기술 Week 5

  2. 기업가치분석 (Valuation) Week 5 • Why value the Value • What is DCF • DCF Case Study

  3. Valuation _ Why value the Value? Why value the Value  Broadened acceptance of Shareholder Value • The continuing debate on importance of shareholder value vs. other measures (employment, social responsibility, and the environment) • UK & US  shareholders are the owner of the corporation  BOD is the representative of shareholders and elected by them objective function of corporation is to maximize shareholder value • Continental Europe For instance, under Dutch law, the board of a Structural N.V. (= a large corporation) is mandated to ensure the continuity of the business, not to represent shareholders in pursuit of value maximization  Similar to Germany & France • Case of Vodafone AirTouch’s hostile acquisition of Mannesmann the German conglomerate in 2000, broadened the acceptance of shareholder value in Europe ( McKinsey Report) • Vodafone  1985 년 영국에서 설립된 가입자 기준 세계최대 휴대폰회사 • Mannesmann  1890 년 독일에서 설립된 강관회사가 모체로, 정보처리, 정밀기기, 건설, 무역 등의 재벌회사 • The broadened acceptance of shareholder value  motivated to value the Valuetriggered various valuation methods (Multiple  DCF  Real Option…) • Did the currency crisis in late ’90s in Korea similarly broaden the acceptance of shareholder value and valuation methodology?  Please recall when the concept of PER was introduced to Korean stock market

  4. Valuation _ Why value the Value? Factors of ascendancy of shareholder value in US market 1. The increased role of stock option • 1970s’ concern on divergence between managers’ and shareholders’ interest  agency problem • 1980s’ US economy’s recover from 70s’ high inflation and low growth  the emergency of LBO, especially management buyout and Fed’s new program to drastically reduce inflation  rise in equity value  increased role of stock option  more importance of valuing equity 2. Pension insolvency • Pay-as-you-go system  workers today pay for retirement of current retirees  Problem as less workers and more retirees  pension crisis without easy fixes • Investment fund needs to generate good return covering the future shortfall  to reduce the burden to a level where political consensus becomes feasible such as gradually increasing the retirement age  more equity investment  more importance of valuing equity • What does it imply to Korean Pension system  군인공제회의 성공 vs 국민연금의 현황

  5. Valuation _ Why value the Value? Factors of ascendancy of shareholder value in US market (continued) 3. Popularization of Equity • Direct share ownership • Indirect share ownership • Mutual funds • Retirement account….. • What does this imply to Korean market ?

  6. Valuation _ What is DCF (Discount Cash Flow, 현금흐름 할인법) Discount Cash Flow • Valuation Methodology • Snapshot on Interest rate • Valuation of Bond • Applying bond valuation to equity valuation  DCF

  7. Valuation _ DCF _VariousValuation Methodology

  8. Valuation _ DCF_ Snapshot on Interest rate • Why pay Interest • 유동성 선호 이론 (Liquidity Preference) • 미래 보다 현재의 현금을 선호, 따라서 보상이 필요  화폐의 시간가치 발생 • 유동성 선호의 이유 • 시차선호(Time value of money)  현재소비를 미래소비보다 더 선호 • 재화의 생산성(productivity)  재화는 시간에 따라 생산성을 지님 • 물가 상승(Inflation)  Inflation으로 인한 실질 구매력의 감소 가능성 • 미래 불확실성 (Uncertainty) 미래 불확실성으로 인한 위험의 존재 • 일반적 이자율의 특성 • Longer maturity (time)  Higher Risk  Higher interest rate • Lower Credit  Higher Risk  Higher interest rate

  9. Valuation _DCF_ Snap shot on Interest rate • Type of Interest • Simple interest rate • Interest amount of 5 year at 10% for 100 $  100 X 0.1 X 5 (yrs) = 50$ • Compounding interest rate  DCF 적용 • Interest amount of 5 year at 10% for 100 $  100 X (1 + 0.1) ^ 5 - 100 $ = 61$ • FV = PV (1 + r ) ^ n  PV = FV / (1 + r ) ^ n • Interest rate (이자율) Future Value = Present Value X interest rate • Discount rate ( 할인율) Present Value = Future Value / Discount rate

  10. Valuation _ DCF _ Valuation of Bond • 채권의 현금흐름과 현재가치 • PV = Present Value • CPN = Coupon payment by coupon rate • FV = Face Value (Future Value, Maturity amount) • r = discount rate FV Coupon Coupon Coupon Coupon Coupon PV

  11. Valuation _ DCF _ Valuation of Bond • 채권의 현금흐름과 현재가치  Case Study

  12. Valuation _ DCF _ Valuation of Bond & DCF Valuation Similarity of Bond Valuation and DCF Valuation

  13. Valuation _ DCF _ Valuation of Bond & DCF Valuation • 채권의 평가방법과 DCF 의 유사성 • FCF = Free Cash Flow • TV = Terminal Value • WACC = discount rate • EV = Enterprise Value TV FCF FCF FCF FCF FCF EV EV = Net debt + Equity Value

  14. Valuation _ DCF _ TV (Terminal Value) Perpetuity &Terminal Value • Perpetuity (영구연금) = 연금의 형태로 일정한 현금흐름이 영원히 발생하는 경우 (영국의 연금채권) • Present value of Perpetuity: PV = C/r ( r = C/PV ) • Present value of growing perpetuity: PV = C /(r - g) • Terminal Value = 마지막 Free cash flow 시점을 perpetuity 로 간주 • Terminal Value: TV = Final FCF X ( 1 + g ) / (r –g) • 즉, TV 는 마지막 FCF발생시점을 현재기준으로, PV of growing perpetuity 개념 적용 • PV of TV: PV of TV = TV / (1 + r ) ^ n • DCF Valuation 에서 TV 또한 다른 FCF 와 함께, 현가(PV)로 계산하여 총 기업가치 (EV)에 포함

  15. Valuation _ DCF _ TV (Terminal Value) Diagram of Terminal Value Perpetuity 1: PV = C/ (r – g) Final FCF Time Line Perpetuity 2: PV of TV = TV / (1+r)^n Perpetuity 2 = TV = FCF (1 + g) /(r-g)

  16. Valuation _ DCF _Discount Cash Flow Key Words of DCF • Revenue • COGS • SG&A • Depreciation • Capital Expenditure • Net working Capital • Free Cash Flow • Enterprise value (or Firm Value) • Net debt • Equity Value • Beta • Cost of equity • Cost of debt • WACC • Perpetual Growth Rate • Terminal Value • Country risk premium

  17. Valuation _ DCF _ Case Study Case Study of DCF Koryo Tanning • Private Company • Valuation as of 1stJan 2005 • Projection for the next 3 years time

  18. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Revenue • COGS • SG&A • Depreciation • Capital Expenditure • Net working Capital • Free Cash Flow • DCF valuation

  19. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Revenue • COGS • SG&A • Depreciation • Capital Expenditure • Net working Capital • Free Cash Flow • DCF valuation

  20. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Revenue • COGS • SG&A • Depreciation • Capital Expenditure • Net working Capital • Free Cash Flow • DCF valuation

  21. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Revenue • COGS • SG&A • Depreciation • Capital Expenditure • Net working Capital • Free Cash Flow • DCF valuation

  22. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Revenue • COGS • SG&A • Depreciation • Capital Expenditure • Net working Capital • Free Cash Flow • DCF valuation

  23. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Revenue • COGS • SG&A • Depreciation • Capital Expenditure • Net working Capital • Free Cash Flow • DCF valuation

  24. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Revenue • COGS • SG&A • Depreciation • Capital Expenditure • Net working Capital • Free Cash Flow • DCF valuation

  25. Valuation _ DCF _Discount Cash Flow Please Recall Key Words of DCF • Revenue • COGS • SG&A • Depreciation • Capital Expenditure • Net working Capital • Free Cash Flow • Enterprise value (or Firm Value) • Net debt • Equity Value • Beta • Cost of equity • Cost of debt • WACC • Perpetual Growth Rate • Terminal Value • Country risk premium

  26. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Beta 의 의미 • The sensitivity measurement of individual security to the well diversified portfolio • Ex, Samsung Electronics vs KOSPI • Beta 값 구하기 • Bloomberg • Statistical Calculation = Formula of BETA = Covariance with market / Variance of market • 시장의 동종업체 Derivation of Beta from comparable companies  Comparable companies’ leveled Beta(s) from market  median unlevered equity beta implied levered equity Beta of targeted company = 0.34 ( Beta of Koryo Tanning) • Beta • Cost of equity • Cost of debt • Country risk premium • WACC • TV = Terminal Value • Enterprise Value • Net Debt • Equity Value Beta = 1 Return of 삼성전자 Beta = 1/2 Return of KOSPI

  27. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Cost of Equity = Re • CAPM (Capital Asset Pricing Model)  Re = Rf + Beta (Rm-Rf) • Rf = Risk Free rate = 3 year government bond rate = 4.09 % • Beta = 0.34 • Rm = The expected return on a fully diversified market portfolio = 20 year return of KOSPI = 10.7 % • (Rm – Rf) = Expected market return over the risk-free rate = 6.61 % • Re = 4.09% + 0.34 (10.7% - 4.09%) = 6.32% • Cost of Debt • Rd = Expected borrowing cost = 7.59% • WACC = Weighted Average Cost of Capital • WACC = D/V * Rd (1 – t) + E/V*Re = 6.19 % • WACC after country risk premium at 1 % = 6.19% + 1 % = 7.19% • Beta • Cost of equity • Cost of debt • Country risk premium • WACC • TV = Terminal Value • Enterprise Value • Net Debt • Equity Value

  28. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Beta • Cost of equity • Cost of debt • Country risk premium • WACC • TV = Terminal Value • Enterprise Value • Net Debt • Equity Value • TV = Terminal Value • By perpetual growth TV = FCF (1 + g) /(r-g)  PV of TV = TV / (1+r)^n • TV = 464 X (1 + 1%) / ( 7.2% -1%) = 7,572 (Round error 있음) • PV of TV = 7,558 / (1 + 7.2%) ^ 3 = 6,148 (Round error 있음) • By EBITDA Multiple  EV / EBITDA 동종업종 peer companies 평균배수 적용 • 동종업계 EV/EBITDA multiple X 고려태닝의 마지막 EBITDA = 5.1 X 2,551 = 13,054 (Round Error 있음) • Perpetual Growth Rate = g  영구 성장율

  29. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) • Enterprise value (EV, or Firm Value) • Debt 과 Equity 모두 포함하는 총 기업가치 • Net debt = interest bearing debt (IBD) – cash • IBD (이자성 부채) 항목 • Long TermBorrowing (고정부채, 장기 차입금) • Long Term Debt (LTD) (고정부채, 사채) • Current Maturity of LTD (유동부채, 유동성 장기 부채) • Short Term Borrowing (유동부채, 단기 차입금) • Cash & cash equivalent • Cash • 적극적인 경우에는 비 현금성 당좌자산을 포함하는 경우도….. Short term financial instrument ( 유동자산, 단기금융상품) Available-for-Sale Securities(유동자산, 매도가능증권) Held-to-Maturity Securities (유동자산, 만기보유증권) • Equity Value = EV – Net debt • Beta • Cost of equity • Cost of debt • Country risk premium • WACC • TV = Terminal Value • Enterprise Value • Net Debt • Equity Value

  30. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법)

  31. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) WACC

  32. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법)

  33. Valuation _ DCF (Discount Cash Flow, 현금흐름 할인법) So, what all these mean ? • DCF Valuation 의 한계 • Argument on projected cash flow • Argument on WACC • Too much assumptions .. Beta, market return cost of debt Country risk premium …. • DCF Valuation 의 적용

  34. 기업가치분석 End of Week 5

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