Corporate Valuation: Measuring the Value of Companies in Turbulent Times

515 Pages·2016·10.43 MB·English

by  Mario Massari

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Corporate
Valuation
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Corporate
Valuation
Measuring the Value of Companies
in Turbulent Times
(cid:2) MARIO MASSARI (cid:2)
GIANFRANCO GIANFRATE
LAURA ZANETTI
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Copyright©2016byMarioMassari,GianfrancoGianfrate,andLauraZanetti.
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LibraryofCongressCataloging-in-PublicationDataisavailable:
ISBN9781119003335(Hardcover)
ISBN9781119003359(ePDF)
ISBN9781119003342(ePub)
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PrintedintheUnitedStatesofAmerica
10987654321
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Contents
Preface xi
Acknowledgments xiii
AbouttheAuthor xv
CHAPTER1
Introduction 1
1.1 WhatWeShouldKnowtoValueaCompany 1
1.2 ValuationMethods:AnOverview 2
1.3 TheTimeValueofMoney 4
1.4 UncertaintyinCompanyValuations 5
1.5 UncertaintyandManagerialFlexibility 9
1.6 RelationshipbetweenValueandUncertainty 15
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CHAPTER2
BusinessForecastingforValuation 18
2.1 Introduction 18
2.2 KeyPhasesoftheBusinessPlanElaboration 18
2.3 WhatDrivesthePreparationofaBusinessPlan? 27
2.4 TheMainMethodologicalIssues 49
CHAPTER3
ScenarioAnalysis 54
3.1 Introduction 54
3.2 WhatIsScenarioAnalysis? 56
3.3 DifferencebetweenScenarioandSensitivityAnalysis 56
3.4 WhentoPerformScenarioAnalysis 57
3.5 WorstandBestCasesandWhatHappensNext 58
3.6 Multi-ScenarioAnalysis 59
3.7 ProsandCons 61
3.8 HowtoPerformScenarioAnalysisinExcel 62
3.9 Conclusions 71
v
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vi CONTENTS
CHAPTER4
MonteCarloValuation 72
4.1 IntroducingMonteCarloTechniques 72
4.2 MonteCarloandCorporateValuation 74
4.3 AStep-by-StepProcedure 76
4.4 CaseStudy:OutdoorInc.Valuation 80
4.5 AStep-by-StepGuideUsingExcelandCrystalBall 100
CHAPTER5
DeterminingCashFlowsforCompanyValuation 125
5.1 Introduction 125
5.2 ReorganizationoftheBalanceSheet 126
5.3 RelationshipbetweenaCompany’sBalanceSheet
andIncomeStatement 134
5.4 FromtheEconomictotheFinancialStandpoint 137
5.5 CashFlowDefinitionsandValuationModels 141
5.6 BusinessPlanandCashFlowProjections 142
CHAPTER6
ChoosingtheValuationStandpoint 151
(cid:2) 6.1 DebtandValue 151 (cid:2)
6.2 FirstProblem:TheRelationshipbetweenLeverage
andValue 152
6.3 SecondProblem:AlternativeValuationTechniques
WhenDebtBenefitsfromaFiscalAdvantage 162
6.4 ThirdProblem:TheChoicebetweenanAsset-Side
versusanEquity-SidePerspective 165
6.5 FromtheAssetValuetotheEquityValue 167
CHAPTER7
LeverageandValueinGrowthScenarios 168
7.1 Growth,Leverage,andValue 168
7.2 NominalandRealDiscounting 169
7.3 ProblemswiththeDiscountofTaxBenefit 172
7.4 CostofCapitalFormulasinGrowthScenarios 173
7.5 TheWACC:SomeRemarks 178
7.6 RealDimensionofTaxBenefits 180
Appendix7.1: DerivationoftheFormulastoCalculate
theCostofCapital 183
Appendix7.2: PatternofK∗ inaGrowthContext:
el
SomeRemarks 190
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CONTENTS vii
CHAPTER8
EstimatingtheCostofCapital 194
8.1 DefiningtheOpportunityCostofCapital 194
8.2 AFewCommentsonRisk 194
8.3 PracticalApproachestoEstimateKeu 197
8.4 ApproachBasedonHistoricalReturns 197
8.5 AnalysisofStockReturns 198
8.6 AnalysisofAccountingReturns 201
8.7 EstimatingExpectedReturnsfromCurrentStockPrices 201
8.8 ModelsBasedonReturns’SensitivitytoRiskFactors 204
8.9 TheCapitalAssetPricingModel 205
8.10 CalculatingR 206
f
8.11 CalculatingRp 208
8.12 Estimating𝛽 212
8.13 DealingwithSpecificRisks 218
8.14 ConclusionsontheEstimationoftheOpportunity
CostofCapital 221
8.15 CostofDebt 222
8.16 CostofDifferentTypesofDebt 224
Appendix8.1: CAPMwithPersonalTaxes 227
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CHAPTER9
CashFlowProfilesandValuationProcedures 229
9.1 FromBusinessModelstoCashFlowModels 229
9.2 CashFlowProfilesofBusinessUnits
versusWholeEntity 230
9.3 ExamplesofCashFlowProfiles 231
9.4 ProblemswiththeIdentificationofCashFlowModels 236
9.5 CashFlowModelsintheCaseofRestructuring 237
9.6 DebtProfileAnalysis 237
9.7 DebtProfilebeyondthePlanHorizonForecast 239
9.8 TheValuationofTaxAdvantages:Alternatives 239
9.9 GuidelinesforChoosingDebtPatternsfor
DeterminingValuations 245
9.10 SyntheticandAnalyticalProceduresValuation 246
9.11 TheStandardProcedure 247
CHAPTER10
ASteadyStateCashFlowModel 249
10.1 ValueasaFunctionofDiscountedFutureResults 249
10.2 CapitalizationofaNormalizedMonetaryFlow 250
10.3 ThePerpetualGrowthFormula 264
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10.4 FormulasforLimitedandVariable
(Multi-Stage)Growth 275
10.5 Conclusions 279
CHAPTER11
DiscountingCashFlowsandTerminalValue 280
11.1 ExplicitProjections 280
11.2 EstimationoftheTerminalValue 281
11.3 EvaluationofGasSupplyCo. 283
CHAPTER12
Multiples:AnOverview 295
12.1 PreliminaryRemarks 295
12.2 TheoryofMultiples:BasicElements 299
12.3 Price/EarningsRatio(P/E) 303
12.4 TheEV/EBITandEV/EBITDAMultiples 307
12.5 OtherMultiples 311
12.6 MultiplesandLeverage 312
12.7 UnleveredMultiples 316
12.8 MultiplesandGrowth 320
(cid:2) 12.9 RelationshipbetweenMultiplesandGrowth 325 (cid:2)
12.10 PEGRatio 326
12.11 ValueMaps 327
Appendix12.1: P/EwithGrowth 330
CHAPTER13
MultiplesinPractice 332
13.1 AFrameworkfortheUseofStockMarketMultiples 332
13.2 TheSignificanceofMultiples 335
13.3 TheComparabilityofMultiples 339
13.4 MultiplesChoiceinValuationProcesses 340
13.5 Estimationof“Exit”Multiples 343
13.6 AnAnalysisofDealMultiples 344
13.7 TheComparableApproach:TheCaseofWineCo. 349
Appendix13.1: CapitalIncreasesandtheP/ERatio 358
CHAPTER14
TheAcquisitionValue 361
14.1 DefinitionsofValue:AnOverview 361
14.2 ValueCreatedbyanAcquisition 364
14.3 Value-ComponentsModel 367
14.4 FurtherConsiderationsinValuingAcquisitions 372
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