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VALUATION: ART, SCIENCE OR MAGIC? - ONLINE TRAINING VIA ZOOM
The mix of basic valuation techniques and applications provided in this seminar should appeal to a widely diverse audience.
There are as many models for valuing stocks and businesses as there are analysts doing valuations. The differences across these models are often emphasized and the common elements are generally ignored. In this four-day seminar, I will start with the estimation issues and basics of intrinsic valuation, talking about the big picture perspective that has to be brought to the estimation of cash flows, growth rates and discount rates. I will use real companies as lab experiments to bring home the estimation questions that have to be dealt with in valuation. Once I have the foundation laid, I will launch into an assessment of the loose ends in valuation and talk about valuing control, synergy and cross holdings in companies. Then, we will move on to what I term the dark side of valuation, valuing difficult-to-value companies across sectors (intangible assets, cyclical and financial service companies) and across the life cycle (small private, young growth, mature transition and declining/distressed companies). In the last part of the session, we will cover the use and misuse of multiples in relative valuation.
Objective
The objective of the seminar is to provide the fundamentals of each approach to valuation, together with limitations and caveats on the use of each, as well as extended examples of the application of each. At the end of the seminar, participants should be able to –
• Value any kind of firm in any market, using discounted cash flow models (small and large, private and public)
• Value a firm using multiples and comparable firms,
• Analyze and critique the use of multiples in valuation,
• Value “problem” firms, such as financially troubled firms and start up firms,
• Estimate the effect on value of a restructuring a firm
Organization
The first part of the seminar will establish the fundamentals of discounted cash flow valuation, with a special emphasis on the estimation issues that come up when estimating discount rates, cash flows and expected growth. It will look at the choices in terms of DCF models and how to pick the right model to value a specific firm. In addition, we will use the basic structure of the discounted cash flow model to take a comprehensive look at how to enhance firm value. In addition, we will focus on a myriad of estimation questions related to cash flows, discount rates and growth rates. We will end the day by looking at the terminal value in DCF valuation: how best to estimate it and common errors made in computation.
The second parts discussion will begin with an analysis of what we call the loose ends in valuation – how to deal with cash, cross holdings and other assets, what the value of control, synergy and liquidity are and how best to deal with employee and management equity and option grants. It will also then extend into the discussion of difficult to value companies. The last part of the day will be dedicated to relative valuation. A range of multiples that are used currently in valuation, from earnings multiples (such as PE, Value/EBIT, Value/EBITDA) to sales multiples (Revenue/Sales, Price/Sales), will be discussed and compared. The relationship between multiples and discounted cash flow models will be explored, and the notion of a “comparable” firm will be examined. (What is a comparable firm? How do you adjust for differences in growth, risk and cash flow capabilities across firms, when estimating multiples?) Finally, the special difficulties associated with comparing multiples across time, and across markets, will be highlighted.
Potential Audience
The mix of basic valuation techniques and applications provided in this seminar should appeal to a widely diverse audience. In particular, it should be useful for
• Equity research analysts, who are interested in examining alternatives to the multiples that they use or the linkage to discounted cash flow models.
• Corporate financial officers, who want to understand the details of valuation, either because they are planning acquisitions or are interested in value enhancement strategies for their firms.
• Analysts involved in mergers and acquisitions, who would like to acquire a wider repertoire of valuation skills.
• Portfolio Managers who are interested in the effects of corporate restructuring on firm value, and the implications for portfolio management.
• Anyone interested in valuation. -
DAY 1
The Discounted Cash Flow Model
Setting up the Model
The Big Picture of DCF Valuation
Valuation Examples
The Discount Rate Question
DAY 2
Risk premiums and Betas
The Cost of Debt
Estimating Cash Flows
Estimating Growth Rates
Estimating Growth Patterns
The Terminal Value
Closing Thoughts on DCF valuation
DAY 3
Loose Ends in Valuation
- Cash, Cross holdings and other assets
- The Value of Control, Synergy and Transparency
- The Liquidity Discount
- Employee Stock Options
The Dark Side of Valuation
- Valuing young, growth companies
- Valuing mature companies in transition
- Valuing declining and distressed companies
DAY 4
The Dark Side of Valuation Continued
- Valuing cyclical companies
- Valuing commodity companies
- Valuing financial service companies
- Valuing private businesses
Relative Valuation
- Deconstructing multiples
- Comparable company valuation
Open Q&A
