valuation methods n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Valuation Methods PowerPoint Presentation
Download Presentation
Valuation Methods

Loading in 2 Seconds...

play fullscreen
1 / 22

Valuation Methods - PowerPoint PPT Presentation


  • 130 Views
  • Uploaded on

Valuation Methods. Methods of Corporate Valuation. Asset-Based Methods Using Comparables Free Cash Flow Methods Option-Based Valuation. Asset-Based Methods . Balance sheet approach: Cash and working capital (book value close to its realizable value)

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Valuation Methods' - velika


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
methods of corporate valuation
Methods of Corporate Valuation
  • Asset-Based Methods
  • Using Comparables
  • Free Cash Flow Methods
  • Option-Based Valuation
asset based methods
Asset-Based Methods
  • Balance sheet approach:
    • Cash and working capital (book value close to its realizable value)
    • Property, Equipment, and Land (appraisal value)
    • Intangibles.
  • Book value of equity vs market value of equity
relative valuation
Relative Valuation
  • What is relative valuation?
  • What is the logic underlying relative valuation?
  • Using comparables
what is relative valuation
What is relative valuation?
  • Relative to revenues or cash flows
  • Relative to Earnings
  • Relative to the Book Value of Equity
relative to revenue
Relative to Revenue
  • Price/Sales (PS)
  • Value/Sales (VS)
  • Usually used in valuing retailing firms
relative to earnings
Relative to Earnings
  • Price/Earnings Ratio (PE)
  • Trailing Price/Earnings Ratio (trailing PE)
    • A trailing PEis a price-earnings ratio based on the most recent 12 months' results. U.S. companies report quarterly, so a trailing PE is computed based on the most recent four quarters.
  • Forward Price/Earnings Ratio (forward PE)
    • Also called estimated PE. Forward PE divides a stock's current price by its estimated future earnings per share. Forward PE is often used to compare a company's current earnings to its estimated future earnings.
relative to the book value of equity
Relative to the Book Value of Equity
  • Price/Book Value (PBV)
  • Market to book Value (MB)
advantages to using multiples in valuation analysis
Advantages to using multiples in valuation analysis
  • Require fewer explicit assumptions than DCF
  • Easy to compute and don’t require forecasting
  • Commonly quoted and used by management and press
disadvantages to using multiples in valuation analysis
Disadvantages to using multiples in valuation analysis
  • Require more implicit assumptions than DCF
  • Logic behind valuation analysis is often misunderstood
  • Identification of comparable firms is subjective
what is logic underlying relative valuation p e ratio
What is logic underlying relative valuation? P/E ratio
  • Think about a basic DCF model (Gordon’s Growth Model)
  • Divide both sides by earnings per share
comparing two pe ratios across firms assumes
Comparing two PE ratios across firms assumes …
  • Identical payout ratio
  • Identical cost or equity
  • Identical expected stable-growth rate
what is logic underlying relative valuation price to book value
What is logic underlying relative valuation? Price to book value
  • Divide both sides by book value of equity
comparing two pe ratios across firms assumes1
Comparing two PE ratios across firms assumes …
  • Identical payout ratio
  • Identical cost or equity
  • Identical expected stable-growth rate
  • Identical
comparing two pe ratios across firms assumes2
Comparing two PE ratios across firms assumes …
  • Identical payout ratio
  • Identical cost or equity
  • Identical expected stable-growth rate
  • Identical Gross profit margin
using comparables
Using comparables
  • Construct the multiple for the set of comparable firms
  • Average the multiple across the set of comparable firms
  • Compare individual firm to this average
  • Differences may be attributed to differences in underlying logic of multiple
  • Differences may be attributed to inefficient markets (price)
ways to control for differences between firms
Ways to control for differences between firms
  • Sample firms and sort according to attributes (Growth, Payout, Risk, ROE, Profit)
    • Requires a large number of potential comparables
    • Compare your firm to subset of comparables with similar attributes
  • Modify the multiples to make them more comparable
    • Divide the PE ratio by the expected growth rate in EPS (PEG Ratio)
    • Divide PBV ratio by the ROE (Value Ratio)
    • This assumes firms are comparable on all other attributes
  • Run regression of multiples on attributes
    • Use coefficient values from regression and attributes for the firm to predict the correct multiple for the firm.
regression based multiple analysis
Regression-based multiple analysis
  • Damodaran ran regressions on 2,475 firms using data from 1998
  • PE=291.27*Growth+37.74*Payout+21.62*Beta
  • PBV=3.99*Payout-0.79*Beta+60.65*growth+31.56*ROE
  • PS=11.56*Growth+1.41*Payout-1.42*Beta+11.93*Margin
free cash flow method
Free cash flow method
  • Free cash flows to equity
  • Free cash flows to firm
    • Basic case
    • Firms with insufficient valuation data
    • Acquisition valuation
option base valuation
Option base valuation
  • Real option approach in valuing firm