Corporate valuation is the process of determining the worth of a firm. In order to evaluate new projects, consider mergers and acquisitions, make strategic decisions, or make decisions about investing in the company, the financial analyst must understand the factors that drive corporate value.
The purpose of this course is to give you a good and practical understanding of basic and more advanced techniques used to measure the worth of the company and its investments.
We start with a discussion of the general framework for valuing corporations in the context of the global post-crisis economy, and we give an overview of the valuation methods and models that are applied in practice.
We then explain how industries and companies can be analyzed in a competitive framework. We look at industry characteristics and discuss various competitive strategies and their risks. We present the famous “Porter’s Five Forces” model and discuss how companies can be analyzed in the context of that model.
We explain and illustrate how companies can be analysis using “accounting” ratios such as EPS, ROE, P/E, P/BV and how a company’s ROE can be decomposed for analysis purposes using the Dupont model.
Further, we explain how corporations can be valued using models based upon projections of earnings and cash flows. We look “dividend discount models” as well as “free cash flow” models, where future cash flows and enterprise value are modeled on more explicit assumptions about firms’ “value drivers”. We also describe and calculate alternative measures of residual earnings and discuss the use of “residual income” models, including the widely used EVA™ model.
Finally, we explain and discuss how various valuation techniques can be put to work in merger, acquisition, restructuring or divesture situations. Here, we also look at how the method of "option-based valuation" can be used to assess the value of a strategic investment, or of a company in distress.