Corporate Valuation - Copy

CVT Corporate Valuation
Techniques
London
Presented by Farius Maarif

Objectives 2

Equip yourself with the skills to:

• Determine which valuation technique is
appropriate for the analytical objective.

• Value companies in the context of mergers,
acquisitions private equity, project appraisal and
IPOs

• Assess the impact of corporate decisions on the
value of the business

• Quantify and manage the risks associated with
corporate valuation

• Assess whether management are creating
shareholder value

• Evaluate corporate valuation and pricing models

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Table of contents

The Valuation Valuation Capital Adaptations Corporate
Foundations After- Finance
Structuring To Valuation Modelling
Thoughts
And Pricing

Corporate Valuation

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FREE CASH FLOW (FCF) FR

FCF…it is cashflow that 4
is available to support
the financing structure
of the transaction or of
the company.

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Formula • Operating FR
cashflow (after
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tax)

minus

Investment

FR

Capital Expenditure Working Investment

• It is the investment into infrastructure of • It is investment into the trading of the

the business business

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FR

Trading Financing

• Trading items would include the • Financing items would include the
movements in inventories, receivable, movements in bonds, leasing,
payables, warranty, claims, preference shares, short debt, lomg
prepayments. etc debt, etc

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Free Cash Flow Example FR

The company involved in food retailing 8
(supermarket)

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Year 1 Year 2 Liabilities FR
(₤ millions)
Assets 22 20 93 174 9
(₤ millions) 39 36 short debt 512 538
57 73 trade creditors 102 111
Cash 259 284 corporation tax 56 66
debtors 315 376 dividend payable 73 70
prepayments 49 18 other creditors 139 168
stock accruals and deferred income
short terms investments 741 807 975 1127
developments properties Current Liabilities
2296 2655 515 475
Current Assets long debts 50 48
(244) (312) deferred taxation 81 41
Freehold Property 602 725 provisions
1621 1691
(accum.depreciation of freeholds) (335) (414) Total Liabilities
Plant, fixtures and fittings 185 238 732 754
issued capital 307 363
(accum.depreciation of plant) 2504 2892 share premium account 99 229
Assets under construction ravaluation reserve 520 715
1 0 profit & lost
Net fixed assets 33 53 1658 2061
3279 3752 Equity
financial assets 3279 3752
share ownership pelan Total Footings
Add aTfootatelrAssets (296) (313)
Working Investment

FR

Working Investment (WI)

• It is investment into the trading of the
business

Majority companies have a positive number as WI. Supermarkets are unusual in that regard, because they have

little in the way of receivable. And the stock (i,.e inventory) turnover is fairly rapid given the nature of their

business. Accordingly, in each of the years presented the WI is a negative number, meaning that the faster the

company expands, the greater the liquidity becomes- the reverse of the situation for typical manufacturing

business Year 1 Year 2 Liabilities
(₤ millions)
Assets

(₤ millions) short debt 93 174
538
trade creditors 512 111
66
Cash Trading 22 20 MINUS corporation tax 102 70
debtors assets 39 36 dividend payable 56 168
prepayments 57 73 other creditors 73
stock 259 284 accruals and deferred income 139

short terms investments 315 376

developments properties 49 18

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10

Why FCF important? FR

To plan for the cashflow adequancy of the 11
busniness going forward

To get line in financial model

To implement in a valuation

To use in the Investment Rule

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CVT Thank You.

Farius Bin Maarif

014-9691261
[email protected]
Jpph Malaysia