Corporate Valuation

Corporate Valuation

by Mario Massari, Gianfranco Gianfrate, Laura Zanetti
Released August 2016
Publisher(s): Wiley
ISBN: 9781119003335

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Book description

Risk consideration is central to more accurate post-crisis valuation

Corporate Valuation presents the most up-to-date tools and techniques for more accurate valuation in a highly volatile, globalized, and risky business environment. This insightful guide takes a multidisciplinary approach, considering both accounting and financial principles, with a practical focus that uses case studies and numerical examples to illustrate major concepts. Readers are walked through a map of the valuation approaches proven most effective post-crisis, with explicit guidance toward implementation and enhancement using advanced tools, while exploring new models, techniques, and perspectives on the new meaning of value. Risk centrality and scenario analysis are major themes among the techniques covered, and the companion website provides relevant spreadsheets, models, and instructor materials.

Business is now done in a faster, more diverse, more interconnected environment, making valuation an increasingly more complex endeavor. New types of risks and competition are shaping operations and finance, redefining the importance of managing uncertainty as the key to success. This book brings that perspective to bear in valuation, providing new insight, new models, and practical techniques for the modern finance industry.

  • Gain a new understanding of the idea of "value," from both accounting and financial perspectives
  • Learn new valuation models and techniques, including scenario-based valuation, the Monte Carlo analysis, and other advanced tools
  • Understand valuation multiples as adjusted for risk and cycle, and the decomposition of deal multiples
  • Examine the approach to valuation for rights issues and hybrid securities, and more

Traditional valuation models are inaccurate in that they hinge on the idea of ensured success and only minor adjustments to forecasts. These rules no longer apply, and accurate valuation demands a shift in the paradigm. Corporate Valuation describes that shift, and how it translates to more accurate methods.

Table of contents

  1. Preface
    1. A Roadmap for This Book
  2. Acknowledgments
  3. About the Author
  4. Chapter 1: Introduction
    1. 1.1 What We Should Know to Value a Company
    2. 1.2 Valuation Methods: An Overview
    3. 1.3 The Time Value of Money
    4. 1.4 Uncertainty in Company Valuations
    5. 1.5 Uncertainty and Managerial Flexibility
    6. 1.6 Relationship between Value and Uncertainty
  5. Chapter 2: Business Forecasting for Valuation
    1. 2.1 Introduction
    2. 2.2 Key Phases of the Business Plan Elaboration
    3. 2.3 What Drives the Preparation of a Business Plan?
    4. 2.4 The Main Methodological Issues
  6. Chapter 3: Scenario Analysis
    1. 3.1 Introduction
    2. 3.2 What Is Scenario Analysis?
    3. 3.3 Difference between Scenario and Sensitivity Analysis
    4. 3.4 When to Perform Scenario Analysis
    5. 3.5 Worst and Best Cases and What Happens Next
    6. 3.6 Multi-Scenario Analysis
    7. 3.7 Pros and Cons
    8. 3.8 How to Perform Scenario Analysis in Excel
    9. 3.9 Conclusions
  7. Chapter 4: Monte Carlo Valuation
    1. 4.1 Introducing Monte Carlo Techniques
    2. 4.2 Monte Carlo and Corporate Valuation
    3. 4.3 A Step-by-Step Procedure
    4. 4.4 Case Study: Outdoor Inc. Valuation
    5. 4.5 A Step-by-Step Guide Using Excel and Crystal Ball
  8. Chapter 5: Determining Cash Flows for Company Valuation
    1. 5.1 Introduction
    2. 5.2 Reorganization of the Balance Sheet
    3. 5.3 Relationship between a Company's Balance Sheet and Income Statement
    4. 5.4 From the Economic to the Financial Standpoint
    5. 5.5 Cash Flow Definitions and Valuation Models
    6. 5.6 Business Plan and Cash Flow Projections
  9. Chapter 6: Choosing the Valuation Standpoint
    1. 6.1 Debt and Value
    2. 6.2 First Problem: The Relationship between Leverage and Value
    3. 6.3 Second Problem: Alternative Valuation Techniques When Debt Benefits from a Fiscal Advantage
    4. 6.4 Third Problem: The Choice between an Asset-Side versus an Equity-Side Perspective
    5. 6.5 From the Asset Value to the Equity Value
  10. Chapter 7: Leverage and Value in Growth Scenarios
    1. 7.1 Growth, Leverage, and Value
    2. 7.2 Nominal and Real Discounting
    3. 7.3 Problems with the Discount of Tax Benefit
    4. 7.4 Cost of Capital Formulas in Growth Scenarios
    5. 7.5 The WACC: Some Remarks
    6. 7.6 Real Dimension of Tax Benefits
    7. Appendix 7.1: Derivation of the Formulas to Calculate the Cost of Capital
    8. Appendix 7.2: Pattern of in a Growth Context: Some Remarks
  11. Chapter 8: Estimating the Cost of Capital
    1. 8.1 Defining the Opportunity Cost of Capital
    2. 8.2 A Few Comments on Risk
    3. 8.3 Practical Approaches to Estimate Keu
    4. 8.4 Approach Based on Historical Returns
    5. 8.5 Analysis of Stock Returns
    6. 8.6 Analysis of Accounting Returns
    7. 8.7 Estimating Expected Returns from Current Stock Prices
    8. 8.8 Models Based on Returns’ Sensitivity to Risk Factors
    9. 8.9 The Capital Asset Pricing Model
    10. 8.10 Calculating RF
    11. 8.11 Calculating RP
    12. 8.12 Estimating β
    13. 8.13 Dealing with Specific Risks
    14. 8.14 Conclusions on the Estimation of the Opportunity Cost of Capital
    15. 8.15 Cost of Debt
    16. 8.16 Cost of Different Types of Debt
    17. Appendix 8.1: CAPM with Personal Taxes
  12. Chapter 9: Cash Flow Profiles and Valuation Procedures
    1. 9.1 From Business Models to Cash Flow Models
    2. 9.2 Cash Flow Profiles of Business Units versus Whole Entity
    3. 9.3 Examples of Cash Flow Profiles
    4. 9.4 Problems with the Identification of Cash Flow Models
    5. 9.5 Cash Flow Models in the Case of Restructuring
    6. 9.6 Debt Profile Analysis
    7. 9.7 Debt Profile beyond the Plan Horizon Forecast
    8. 9.8 The Valuation of Tax Advantages: Alternatives
    9. 9.9 Guidelines for Choosing Debt Patterns for Determining Valuations
    10. 9.10 Synthetic and Analytical Procedures Valuation
    11. 9.11 The Standard Procedure
  13. Chapter 10: A Steady State Cash Flow Model
    1. 10.1 Value as a Function of Discounted Future Results
    2. 10.2 Capitalization of a Normalized Monetary Flow
    3. 10.3 The Perpetual Growth Formula
    4. 10.4 Formulas for Limited and Variable (Multi-Stage) Growth
    5. 10.5 Conclusions
  14. Chapter 11: Discounting Cash Flows and Terminal Value
    1. 11.1 Explicit Projections
    2. 11.2 Estimation of the Terminal Value
    3. 11.3 Evaluation of Gas Supply Co.
  15. Chapter 12: Multiples: An Overview
    1. 12.1 Preliminary Remarks
    2. 12.2 Theory of Multiples: Basic Elements
    3. 12.3 Price/Earnings Ratio (P/E)
    4. 12.4 The EV/EBIT and EV/EBITDA Multiples
    5. 12.5 Other Multiples
    6. 12.6 Multiples and Leverage
    7. 12.7 Unlevered Multiples
    8. 12.8 Multiples and Growth
    9. 12.9 Relationship between Multiples and Growth
    10. 12.10 PEG Ratio
    11. 12.11 Value Maps
    12. Appendix 12.1: P/E with Growth
  16. Chapter 13: Multiples in Practice
    1. 13.1 A Framework for the Use of Stock Market Multiples
    2. 13.2 The Significance of Multiples
    3. 13.3 The Comparability of Multiples
    4. 13.4 Multiples Choice in Valuation Processes
    5. 13.5 Estimation of “Exit” Multiples
    6. 13.6 An Analysis of Deal Multiples
    7. 13.7 The Comparable Approach: The Case of Wine Co.
    8. Appendix 13.1: Capital Increases and the P/E Ratio
  17. Chapter 14: The Acquisition Value
    1. 14.1 Definitions of Value: An Overview
    2. 14.2 Value Created by an Acquisition
    3. 14.3 Value-Components Model
    4. 14.4 Further Considerations in Valuing Acquisitions
    5. 14.5 Acquisition Value of Plastic Materials Co.
    6. 14.6 Acquisition Value of Controlling Interests
    7. 14.7 Other Determinants of Control Premium
    8. 14.8 Acquisition Value in a Mandatory Tender Offer
    9. 14.9 Maximum and Minimum Exchange Ratios in Mergers
    10. 14.10 Exchange Ratio and Third-Party Protection
    11. Appendix 14.1: Other Value Definitions
  18. Chapter 15: Value and Prices in the Market for Corporate Control
    1. 15.1 Price Formation in the Market for Control
    2. 15.2 Benefits Arising from Acquisitions
    3. 15.3 From the Pricing Model to the Fair Market Value
    4. 15.4 Fair Market Value Estimated Adjusting Stand-Alone Cash Flows
    5. 15.5 Premiums and Discounts in Valuation
    6. 15.6 The Most Common Premiums and Discounts
    7. 15.7 Value Levels and Value Expressed by Stock Prices
    8. 15.8 Estimating Control Premiums
    9. 15.9 Estimating Acquisition Premiums
    10. 15.10 Acquisition and Control Premiums in a Perfect World
    11. 15.11 Estimating the Value of Controlling Stakes: An Example
    12. 15.12 Minority Discount
    13. 15.13 Discount for the Lack of Marketability
    14. 15.14 Definitions of Value and Estimation Procedures
  19. Chapter 16: Valuation Considerations on Rights Issues
    1. 16.1 Introduction to Rights Issues
    2. 16.2 Setting the Subscription Price
    3. 16.3 Value of Preemptive Rights
    4. 16.4 Conclusions
  20. Chapter 17: Carbon Risk and Corporate Value
    1. 17.1 Why Carbon Risk Matters
    2. 17.2 From Carbon Risks to Carbon Pricing
    3. 17.3 Incorporating Carbon Risks in Corporate Valuation
    4. 17.4 Carbon Beta
  21. Index
  22. End User License Agreement

Product information

  • Title: Corporate Valuation
  • Author(s): Mario Massari, Gianfranco Gianfrate, Laura Zanetti
  • Release date: August 2016
  • Publisher(s): Wiley
  • ISBN: 9781119003335