OBJECTIVES

  • Learn common approaches used to value assets and corporations, including comparables and cash-flow methods.
  • Develop and understanding of business operations and their impact on financial statements.
  • Learn the principles required to build integrated financial statement models.
  • Learn how to plan and design models effectively, and to use best practices to build them.

DESCRIPTION

  • OverviewThis course begins with a discussion of common valuation methods, including comparables (ratio-based methods or multiples) and cash flow methods. It discusses how to conduct valuations at the enterprise level and the equity level, and to convert between them. It then discusses financial statements, including the meaning of financial statements and examples of how the line items are affected by transactions in business operations. It explains a step-by-step methodology to build an integrated financial statement model from scratch, including key options and issues to consider at each stage, and error-checking and correction tools. It briefly discusses how more detail and sophistication could be added to each step (and thus sets the foundation for some of the Level III course “III.2 Advanced Corporate Finance, Valuation and Optimisation”).
  • Practical work, exercises and quizzesStudents are expected to build simple examples for themselves as they follow the text, and in order to take the quizzes.

KEY TOPICS

  • Valuation principles and approaches in corporate finance. Comparables and asset-based approaches. Cash flow valuation. Advantages and disadvantages of each approach. Enterprise and equity valuations and conversions. Introduction to derivates approaches. Annuities and value-driver formulas. Explicit forecast periods and best practices. Fade periods. Multi-stage terminal value periods and annuities.
  • Introduction to financial statements. Meaning and interpretation. Core transactions and their effects on each statement.
  • The modelling of integrated financial statements. Objectives. Differences with historical analysis. Issues to consider. Step-by-step methodology. Generalising the models to include specific features. Tips and tricks. Balancing the balance sheet. Circular references. Consistency checking. Error elimination.

QUIZZES

  • Quizzes. To build models for valuation and integrated financial statements, and run sensitivity analysis for these.

Take the course

III.2 Principles of Corporate Finance and Valuation

Valuation using comparables and cash flow methods, as well as financial statement modelling

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