Introduction to Company Valuation

Company valuation is a complex topic.  In this class you will be introduced to the three main types of company valuation methods:

• Book Value (Asset Valuation)
• Market Value  (Comparable Valuation)
• Intrinsic Valuation (Discounted Cash Flow Valuation)

Introduction to Company Valuation

In this lecture I welcome you to the course and explain what we are going to cover.  If you are not sure if this course is for you, then I explain quite clearly who I think will benefit from this course. And, I tell you a little about me and my past investment banking experience (which seems to go back more years than I would like to remember!)

What is the Class Project?

This is just to give you a heads up on what to expect in the Class Project at the end of this class.  I have prepared a simple Discounted Cash Flow model which you will have to complete (inputs provided).  This will show you how DCF models work and enable you to experiment and discover for yourself how sensitive valuation outcomes are to relatively minor changes in the discount and terminal value metrics.

How do you value a Company?

We discuss the complexity of company valuation in a broad perspective demonstrating that there is no simple answer to this question.  We do introduce frameworks and methods that are commonly used in company valuation while highlighting their advantages and disadvantages.  If you are new to the topic, this is great introductory overview of the subject.

Six Key Valuation Principles

As we have already established value is a subjective concept.  This lecture explains six key principles which can impact value and valuation exercises.  Its important for analysts constructing valuation models to ensure these are understood and reflected in the model's input assumptions.

How does Cost Valuation Work?

Here we are looking not only as Cost Valuation but also related asset based valuation approaches.  These are seldom used in Corporate Finance but we do need to be aware of them and their limitations.

Types of Ratio Analysis and Their Role in Valuation

Ratio Analysis is a technique for measuring the performance of companies and making performance comparisons.  We can however adopt this approach to enable us to create ratios which we can use in comparative valuation approaches, which we will cover later in this course. This lecture explains the five types of Financial Ratios used in Financial Analysis and then shows how we can extract information from financial statements to create ratios which are relevant to valuation

Introduction to Comparable Company Valuation

In this lecture we introduce Comparable Companies valuation and explain its benefits and drawbacks.  This approach is used frequently by analysts and investors and its important to have a detailed grasp of how to implement this method of valuing companies.

What is Precedent Transaction Analysis?

This is another relative valuation methodology which relies on historic M&A transactions to derive a valuation for your target company.  We explain how this works, how it compares to Comparable Companies Analysis and some of its drawbacks.  For all that, it is important and forms one of the three main valuation methods used by professionals, principles and investors to value companies. 

What is a DCF Valuation?

A Discounted Cash Flow Valuation is a valuation method with which we arrive at the value of a company, an asset or an investment today by calculating the value of all future cash flows from the asset.  In this lecture we explain the basis of the methodology before we take a deeper look into the method in subsequent lectures.

What do you mean by Cash Flow?

It is important that you select the correct cash flow line in the cash flow statement for your valuation exercise and this lecture explains some definitions of cash flow and which line to use.

Drivers of Business Valuation

When creating your DCF Model you need to consider your input assumptions very carefully.  These have to be an accurate reflection of historic performance combined with object assessments of future performance, including improvements and costs savings. We consider the range of factors affecting the cash flow in this lecture and discuss the approach you should take.

Understanding the Capital Asset Pricing Model

The Capital Asset Pricing Model or CAPM enables us to calculate the Expected Return for an asset or a company.  The components are explained in this lecture.  The CAPM is used in the calculation of the Discount Rate which we will need for our DCF model so its important that you understand what is its and how to calculate it.

The Weighted Average Cost of Capital Formula

The WACC formula builds on the CAPM to help us to arrive at a blended cost of debt and equity.  It is this blended value that we use for our discount rate in our DCF modelling.   The formula is explained in this lecture so that you can understand its components and how to calculate a WACC for your modelling purposes.

Three Ways to Value Private Companies

We look in this lecture at three ways to value private companies (assets, earnings and cash flow) and discuss the difficulties in using all three when it comes to applying them to private company situations.

How do you Value a Startup?

In this lecture we introduce the idea of Startup Valuation and tie it very much to the stage of development of the company.  This helps to give us a rule of thumb for values at each stage as well as insight into the types of investors who might be interested.

What is a DCF Model?

We have discussed the components of our Discounted Cash Flow model in the previous lectures and now its time to bring these together to discuss DCF modelling in practice.  Here we introduce DCF modelling and I share a basic example with you so that you can understand what a simple example of a DCF model looks like.  The steps in the model are all topics we have discussed in previous lectures.

Some Top Modelling Tips before you Start

Here are some simple modelling tips to help you to create a better DCF Model.  Whatever your experience, there is something in this lecture for everyone.

How to Create Your Forcast

In this lecture I explain the four approaches to creating your forecast which you do in your inputs area or inputs sheets.  As your valuation is only as good as your forecast, this is something that needs to be prepared with care.

Key Steps in Creating Your DCF Model

his lecture explains the key steps in creating your DCF model and takes you through the process in a logical sequence.  If you have never done this before you will find this step by step sequence easy to follow and once you are more experienced it will all seem quite logical

The Best Way to link your Three Financial Statements

This lecture walks you through the connections between the three financial statements and shows you how to build your model so that the three statements connect correctly and at the end, the Balance Sheet balances!

DCF Model Exercise

This explains the Class Project in more detail

Summary and Wrap Up

This draws everything together.  I hope you enjoy the course

Don't forget to check out my other courses here on Skillshare - https://www.skillshare.com/user/jbdcolley

Best regards

John