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Valuation

Valuation. FIN 449 Michael Dimond. Damodaran has resources online. http://pages.stern.nyu.edu/~adamodar/ His spreadsheets are not always as helpful as you might want… An example of a valuation summary he did in 2008. What Damodaran’s valuation summary looks like: September 2008.

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Valuation

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  1. Valuation FIN 449Michael Dimond

  2. Damodaran has resources online • http://pages.stern.nyu.edu/~adamodar/ • His spreadsheets are not always as helpful as you might want… • An example of a valuation summary he did in 2008

  3. What Damodaran’s valuation summary looks like: September 2008

  4. What Damodaran’s valuation summary looks like: October 2008

  5. Bear in mind, these were a summary. We will ultimately want something more detailed for a working document.

  6. What does the DCF Model look like? • What drives the figures? • How sensitive are they to basic inputs?

  7. To start, compute historic FCFF & FCFE for the past 5 years FCFF = NI + Int(1-t) + Depr - ΔFA - ΔNWC FCFE = NI + Depr - ΔFA - ΔNWC + ΔDebt - PfdDiv FCFF = FCFE + Int(1-t) - ΔDebt + PfdDiv FCFE = FCFF - Int(1-t) + ΔDebt - PfdDiv • How accurate would it be to extrapolate the future cash flows from the past FCFE figures? • In other words, can we simply assume FCFE will grow X% forever? • Here are the historic FCFE for a company: • Instead, we project the drivers of these figures for the future. • Compute FCFF & FCFE based on the forecast figures

  8. Relationships in financials drives FCFF & FCFE We will start with financial statements and forecast expected reportings, then adjust to find expected future cash flows

  9. Relationships in financials drives FCFF & FCFE We will start with financial statements and forecast expected reportings, then adjust to find expected future cash flows

  10. We need to assess sensitivity to assumptions • What drives the figures? • How sensitive are they to basic inputs?

  11. Coming up Exam (Thurs 1/16) Financial Statement & Cash Flow exercise (Tues 1/21) Template will be posted on the course webpage Have I/S, B/S & SoCF done, we will compute cash flows in class Begin valuation #1 (Thurs 1/28)

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