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Discounted cash-flow and economic value added valuation methds in corporate valuation
Transcript of Discounted cash-flow and economic value added valuation methds in corporate valuation
- The Case Company needs
- The necessity of this topic Research approach Deductive Research questions Corporate finance Definition How much is the value the Case Company? Discounted cash-flow and economic value added methods in corporate valuation Nguyen Vu Thuy Linh
Degree program in International Business
Spring 2013 - What are the suitable valuation approaches?
- What relevant information is required for applying those valuation methods?
- What are the difficulties in implementing valuation process in practice?
- Which valuation method is more reliable in this case? Quantitative research method Primary and secondary sources of information Definition Main concept Corporate valuation Valuation approaches Definition Misconceptions Reasons for valuation The process of estimating the value of something 1. A valuation is an objective search for a "true value"
2. A good valuation provides a precise estimation of value
3. The more quantitative a model is, the better the valuation 1. Tax purposes
2. Litigation purposes
3. Transaction purposes Discounted cash-flow valuation approach Advantages Disadvantages Inputs Economic value added valuation approach Advantages Disadvantages Inputs A valuation method uses future cash flows projections and discounts them in a suitable rate in order to calculate the present value of the target. 1. Less exposed to the market moods and perception
2. A good tool for investors who buy business rather than stocks
3. Help investors to understand the underlying financial characteristics of the company 1. High volume of inputs
2. Long time observation
3. Difficult in forecasting inputs of the model EBIT NOPAT Current assets + current liabilities Net working capital Capital expenditure (CAPEX) Depreciation FCFF Cost of debt
Capital Assets Pricing Models Cost of equity WACC Net present value An analytical tool to estimate a company economic profit The concept of EVA valuation method 1. Help managers to make investment decisions
2. A diagnostic tool for managers
3. Simple principles 1. Does not involved cash flows
2. Does not encourage who invests to start-up companies
3. Incomparable between companies
4. Does not include external effects Total liabilities
Accrued Expense Company capital Cost of debt
CAPM Cost of equity WACC Capital Charge EBIT NOPAT EVA Discounted Cash-flow valuation approach Economic value added valuation approach The company's value is 31.508.190€ EUR
The equity value is 25.565.844€ EUR The company has the value of 31.080.318 EUR
The value of equity claims the business is 24.924.553 EUR Conclusion, comparisons and recommendations The company's value is approximately 31.300.000 EUR(+or-500.000) EVA valuation is more reliable in this case Three main difficulties: languages, forecasting and implementation Thank you for your attention! A good result for the company
The company should invest more in R & D research
Decrease operational costs