bluebookacademy.com - introduction to business valuation
TRANSCRIPT
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Introduction to Business Valuation
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Learning Outcomes
• Applications of Valuation
• Equity and Enterprise Value
• Asset Based Valuation
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•Value
•Price
•Worth
Introduction To Valuation
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Major resource allocation decisions are underpinned by an assessment of what projects are worth.
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The valuation of the business may not be equivalent to the actual transaction price.
Price is what you pay. Value is what you get.
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•Raising Money for Your Own Business
•Valuing a Company
•Evaluate New Projects
•Make Stock Recommendations
Applications of Value
•Saving for your kids’ education
•Pension Planning
•Your Mortgage
•Buying or Leasing a Car
•Deciding on an MBA
Application in business Application in life
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• IPOs and sale of equity
•Mergers
•Acquisitions
•Reorganisations
•Spin-offs
•Liquidations
Applications of Value
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LEGAL TAX
Litigation Tax Regimes
Collateral Corporate Structure
Insurance claims Capital Structure
Employee incentive plans
Applications of Value
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Three Valuation Methods
•In asset based valuation, you value a business by valuing its individual assets. These individual assets can be tangible or intangible.
•In intrinsic valuation, you value a business based upon the cash flows you expect that business to generate over time.
•In relative valuation, you value a business based upon how similar businesses are priced.
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Three Valuation Methods
• Accounting value: You could use the book value of the asset as a proxy for the estimated value of the asset.
• Intrinsic value: Estimate the expected cashflows on each asset or asset class, discount back at a risk adjusted discount rate and arrive at an intrinsic value for each asset.
• Relative value: Look for similar assets that have sold in the recent past and estimate a value for each asset in the business.
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Enterprise Value
Enterprise Value is the market value of a company’s:
• Net operational assets +
• Value of its future growth opportunities +
• Intangible assets
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Firm Value Using the Balance Sheet
Debt
Equity
Cash
Operating Assets
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Enterprise Value
=
Debt
Equity
Cash
Operating AssetsEnterprise
Value is the market value of
the Balance Sheet
+
+
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Equity Value
Equity value is the market value of a company’s shares to
its owners or shareholders.
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Equity Value
-
Debt
Equity
Cash
Operating Assets
Equity Value is market value of
assets minus market value
of Debt
+
=
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Equity & Enterprise Value
Sales
-COGS
Gross Profit
-Operating Expenses
Operating Income (EBIT)
-Interest Expense / Income
Profit before Tax
-Tax
Profit after Tax (Net Income)
Enterprise Value
Net Debt / Cash
Equity Value
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Calculating Enterprise Value
Enterprise Value = Equity Value + Total Debt - Cash
Net DebtShare price * No. shares outstanding
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Calculating Enterprise Value
Enterprise Value = Equity Value + Net Debt
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Calculating Equity Value
Equity Value = Enterprise Value - Net Debt
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Asset based Valuation
Valuing an entity based on its net assets (shareholders’
equity): total assets less total liabilities
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When is Asset-based Valuation Relevant?
• Sum of the parts: If a business is made up of individual divisions or assets, you may want to value these parts individually.
• Liquidation: If you are liquidating a business by selling its individual components.
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Asset-based Valuation
Relevant Sectors
•Investment Companies (eg. Real Estate, investment funds)
•Financial Services (eg. Banks)
•Natural Resources Companies
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Case Study: Shaftesbury PLC Annual Report
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Case Study: Shaftesbury PLC Annual Report
Considerations that need to be made when using the asset approach are:
• Premise of Value • Control • Marketability • Going concern