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Corporate Valuation

This document provides an overview of corporate valuation. It defines valuation as determining the monetary worth of an asset or business. Valuation is used to assess if a stock is undervalued, fairly valued, or overvalued compared to its estimated value. There are three main categories of valuation models: present value models like discounted cash flow, multiplier models using share price multiples, and asset-based models adjusting book value. The document also gives examples of simple valuation calculations to estimate a firm's value per share based on enterprise value and equity value.

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51 views13 pages

Corporate Valuation

This document provides an overview of corporate valuation. It defines valuation as determining the monetary worth of an asset or business. Valuation is used to assess if a stock is undervalued, fairly valued, or overvalued compared to its estimated value. There are three main categories of valuation models: present value models like discounted cash flow, multiplier models using share price multiples, and asset-based models adjusting book value. The document also gives examples of simple valuation calculations to estimate a firm's value per share based on enterprise value and equity value.

Uploaded by

Deep Arora
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Corporate Valuation

What is value ?
Valoir (French)- be worth
The monetary worth of something.
The monetary worth of an asset, business entity
or good sold.
The worth of all the benefits and rights arising
from ownership.
The worth of something compared to the price
paid or asked for it.
Valuation is the art/science of determining what
a security or asset is worth.
Why Valuation (Use) ?
What do these statements mean?
Infosys share price is Rs 3200
The IPO of company X is priced between Rs
100-Rs 210)
How can we deduce whether these stocks are
overvalued or undervalued?
- Comparison between value and price
Users of Valuation
Stock traders
Investment bankers
Individual investors
Venture capitalists
Debt lenders
Business strategists in companies
??????
Estimated Value and Market Price
Undervalued:
value >
market price
Fairly valued:
value =
market price
Overvalued:
value <
market price
Major Categories of equity valuation Models
Present value
models(DCF
models)
Does require
forecasting
Dividend discount
models
Free cash flow models
Multiplier models
Does not require
forecasting
Share price multiples
Enterprise value
multiples
Asset-based
valuation models
Does not require
forecasting
Adjustments to book
value
Advantages and Disadvantages
Theoretically appealing and provide a
direct computation of value
Input uncertainty can lead to poor
estimates of value
Present
value models
Ratios are easy to compute and
analysis is easily understood
Problems with selecting a peer group
or comps
Multiplier
models
Consistent with the notion that a
business is worth the sum of its parts
Difficulties determining market value
and the value of intangible assets
Asset-based
valuation
Some fundamentals of valuation
Fundamental risk is the risk that results from
uncertainties in business operations
Price risk is the risk of trading at the wrong price
Alpha is the excess return over expected or
benchmark return
Market capitalization (Mcap)
Enterprise value is the value of long term claims
on the firm= Value of Equity + Value of Debt
Equity valuation
What is growth ?
Recent figures are more important or further past
figures ?
Past figures are no indicator of future
performance..Forecasting required
Data from Income statement
- Sales (Annual, Quarterly or Monthly)
- PAT (Annual, Quarterly or Monthly)
Data from balance sheet
- Total Assets
- Book Value
CAGR
Industry Benchmarks
Should average of industry should be
used ?
Average of similar companies should
be used OR
Average of top 5 companies from the
industry should be used
A simple situation.
An analyst estimate that the enterprise value of a
firm is Rs 2.7 Bn. The firm has 900 Mn of Debt. Is
there are 900 Mn shares, find the value per share
of the firm.
EV=Rs 2.7 Bn
Value of Debt= Rs 900 Mn
Value of Equity is 2700-900=1800 Mn
Value of shares =Rs 1800Mn/900Mn=Rs 2 per
share
This is the value and NOT price per share
Another simple situation
BV of shareholders equity is Rs 850 Mn with 25 Mn
shares issued trading at Rs 45 each in stock market.
BV per share= Rs 850 Mn/25 Mn= Rs 34
Buy or Sell ?
An analyst calculates that an extra value of Rs 675 Mn
is not reflected in the book value.
Thus, total value of the equity=BV+ extra value=Rs 850
Mn+Rs 675 Mn=Rs 1525 Mn
Value per share= Rs 1525 Mn/25 Mn= Rs 61
Buy or Sell ?
Important Principle of Valuation
Anchor a valuation on,
what you know,
rather than speculation

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