II.2. Valuation in Corporate Finance

Valuation, Financial Statement Modelling and Portfolio Analysis

OBJECTIVES

  • Understand the main approaches and key concepts involved in the classical financial applications of: valuation, cost-of-capital calculations, financial statement modelling and portfolio analysis.
  • Create an understanding of the modelling issues faced in each main application area.
  • Highlight and develop the skills and structures necessary to conduct analysis and create models in these areas.

DESCRIPTION

  • Overview. This course covers the key valuation in a corporate finance context (i.e. with a focus on enterprise and equity valuations). The first part covers the principles of valuation, especially cash flow methods. The second part explores the time value of money. The third part introduces some of the core aspects of more advanced topics in this area, such as alternative approaches to accounting for the effects of leverage on the cost of capital.
  • Practical Work and Exercises. Readers are expected to build simple examples for themselves as they follow the text. The course also contains downloadable data sets or simple models that allow a reader to do this practical work without having to enter large sets of data or repeat previous steps.

KEY TOPICS

  • Valuation principles and approaches. Multiples, ratios and comparables · Asset-based approaches · Cash flow valuation · Enterprise and equity valuations and conversions · Derivates approaches · Annuities and value-driver formulas · Using annuities and terminal values effectively · Fade periods and multi-stage annuities.
  • Time value of money, risk and return. Bond yield · Yield curve · Risk premia · Risk and return · Portfolio risk and return · Correlation · Capital Asset Pricing Model  · Cost of equity · Weighted cost of capital · Leveraged and unleveraged cost of capital· Classical risk and return measures · Other risk measures · Value-at-risk · Semi-deviation · Sharpe and Treynor ratios.
  • Variations and Advanced Topics in Cash Flow Valuation. Multiple annuity or terminal value periods · Explicit forecast periods and best practices Adjusted Present Value approaches · Modigliani-Miller approaches to leverage formulas · Fama-French and Multi-factor models · Introduction to M&A modelling · Introduction to project finance and key measures and ratios.