Corporate Valuation
Course Description :
The Corporate Valuation course will focus on the valuation of private and public companies as well as a single project (although it might be quite a complex one). The objective of this course is to learn the fundamental principles of valuation. We will discuss the drivers of corporate value, specifically return on investment and organic revenue growth. We will focus our attention on three most most common methods of valuations: Intrinsic Valuation, Relative Valuation and Real Option Valuation. We will cover financial analysis using the 10-K. Our primary goal will be to build a clean understanding of operating performance across business units and for the entire company. An in-depth discussion of the accountant's cash flow statement and free cash flow follows. We will discus the difficulty in implementing these methods for multinational companies and suggest some solutions. We document selected accounting issues that affect our perception of financial performance, free cash flow, and risk. We will cover issues related to off-balance sheet financing, retirement obligations, and deferred taxes. The course is structured such that the material covered in the lectures is reinforced using case-studies and problems. By the end of this course, you are expected to be able to tackle just about any valuation problem.
Prerequisites :
Fundamental of:
- Finance
- Accounting
- Statistics.
Topics of the course :
| session # | Topics | Assignments & Readings |
| 1 | *Introduction and overview of Valuation. *Know the company you are valuing. | Assignment 1 – Join a group and submit the name of a company for valuation. |
| 2 | *Case study: Valuation of 3M *Intrinsic Valuation: Risk Free, Risk Premium and Discount rate | Assignment 2 - Submit company and Industry analysis for the company you have chosen. |
| 3 | *Intrinsic Valuation: -Calculating cost of capital; debt and equity -Cash Flow vs. Earnings. | Assignment 3 – prepare summary financial statements of last 3-5 years for the company you are going to value. |
| 4 | * Intrinsic Valuation: Growth and Terminal Value | Assignment 4 – Calculate cost of capital for your company. |
| 5 | Special topics in valuations 1: Taxes, adjustments for capital leases, pension plan etc., (APV)… | Assignment 5 – Estimate the short and long term growth of your company. Estimate the future cash flow and the terminal value. Calculate the DCF |
| 6 | Special topics in valuations 2: Taxes, adjustments for capital leases, pension plan etc., (APV)… *Value vs. Price | Assignment 6 – Perform adjustments to the discounted Cash Flow. |
| 7 | Relative valuation: The pricing process base on Multiples. | Assignment 7 - For the company you have chosen, find a list of comparable companies. |
| 8 | Relative valuation: Finding Comparable and using the right implementation of the process | Assignment 8 – Use Relative valuation for your company |
| 9 | Asset Based Valuation | |
| 10 | Simulation Analysis | Reading - Chapter 3 (Sheridan Titman) Assignment 9 – Perform simulation analysis on the company you are valuing |
| 11 | Real Options Valuation | Reading – Chapter 5 (Aswath Damodaran) |
| 12 | Case Study analysis: | Assignment 10 - Case study. |
| 13 | Review session | Assignment 11 – Submit your valuation report |
| Exam |
Course Goals :
- Learn the fundamental principles of company valuation and how to apply them.
- Identify the drivers of corporate value, specifically return on investment and organic revenue growth and how companies keep their competitive advantage
- Learn how to apply Intrinsic Valuation, Relative Valuation and real Options and when to use each method.
- How to use simulation to test the robustness of your valuation
Grading :
Group Project: You should work in groups of three (minimum) to five (maximum) students. (30%)
- DCF Valuation due by the 11th session of the course. This is to assist to to do it right. No grade will be given in this point.
- Entire project due on the day of the exam.
- Assignments are designed to assist you to complete the project along the semester. They are team work
Exam: (70%) Individual Work:
- I will be uploading homework during the semester. You will have to upload the solutions to 80% of these homework to qualify to take the exam.
Learning Outcomes:
- To calculate Free cash flow using historical financial Statements and learn how to treat special items.
- To calculate cost of capital for local and international companies.
- To implement Intrinsic valuation.
- To apply Relative Valuation methods and when to use it.
- How to use Simulation for valuation.
- How and when to use of real option method of valuation
Reading List:
- Valuation (5th or 6th Ed) by Koller, Goedhart, and Wessels, (2015), John Wiley & Sons, Inc, NY.
- The Dark Side of Valuation second edition by Aswath Damodaran (2010).
- The Art and Science of Corporate Investment Decisions (3th edition), by Sheridan Titman and John Martin (2016).
- Analysis for Financial Management + Standard & Poor's, Educational Version of Market Insight (Paperback) by Robert C. Higgins (Author), Robert Higgins (Author) 5. Principles of Corporate Finance, 12th Edition, by Brealey, R., S. Myers and F. Allen (2017)
