There are as many models for valuing stocks and businesses as there are analysts doing valuations. Users often emphasize the differences across models and the common elements are ignored. The first day of the seminar will cover discounted cash flow valuation, and the estimation issues that arise when information is noisy or unavailable. The second day of the two-day seminar on valuation will center around the other approaches to valuation - (1) the use of multiples and comparable firms in what can be called relative valuation and (2) the use of option pricing techniques to value certain types of stocks and businesses. In the process, the common factors that run across these models, as well as the differences, will be discussed.
Objective:
The objective of the seminar is to provide the basics 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 a firm in any market, using discounted cash flow models
- 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
- Tie valuation approaches to investment strategies & philosophies
Who should attend:
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.
The first part of the seminar will establish the basics 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.
- Finally, we will make the link between value and business choices on investments, dividends and capital structure.
The second part of the seminar will begin by looking at valuing difficult to value firms, across the life cycle from young start ups to firms in distress. We will then move on to relative valuation and look at sensible ways to incorporate multiples into 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.
The third part of the seminar will look at option pricing models and their potential use in valuation. It will look at three specific applications
- The valuation of the equity in a financially troubled firm as an option,
- The valuation of rights to natural resources (oil reserves, mines ...) as options
- And the valuation of patents and start-up companies as options.
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