1. Multiple Approach
1.1. Three Fundamental Principles
1.1.1. The company is to be valued in its entirety
1.1.2. The company is valued at a multiple of its profit-generating capacity
1.1.3. Markets are efficient and comparisons are therefore justified
1.2. Global Approach
1.2.1. Based not on the value of operating assets and liabilities, but on the overall return they are expected to generate
1.3. Comparative Approach
1.3.1. Companied are bought and sold at a specific price level based on internet parameters and by the Stock Market context.
1.4. Multiples
1.4.1. Multiples based on enterprise value
1.4.1.1. EBIT multiple
1.4.1.2. EBITDA multiple
1.4.1.3. OTHER
1.4.2. Multiples based of equity value
1.4.2.1. Based on operating balances after interest expenses
1.4.2.2. P/E ratio
1.4.2.3. Cash Flow multiple
1.4.2.4. Price-to-Book ratio
1.4.3. Transaction Multiples
1.4.3.1. Control premium: what the acquirer paid to obtain control of the target company
1.4.3.2. Reflect majority value
2. Sum of the Parts Method
2.1. Consists in valuing and summing company's different assets, divisions or subsidiaries and deducting liabilities.
2.2. Basic Types of Value
2.2.1. Market Value
2.2.1.1. Value we could obtain by selling asset
2.2.2. Value in Use
2.2.2.1. Value of an asset that is used in the company's operation
2.2.3. Liquidation Value
2.2.3.1. Value of an asset during a fire sale to get cash as soon as possible to avoid bankruptcy
2.2.3.2. Market value - Discount
2.3. Tangible Assets
2.4. Inventories
2.5. Intangible Assets
2.5.1. Lease rights
2.5.2. Brands
2.5.3. Patents and Technical Know-How
2.6. Tax Implications
3. Lifecycle Theory
3.1. When a company is founded: Net Asset Value = Cash Flow
3.2. After first year: net asset valley dips and cash flow grows
3.3. Growth Phase: net asset value will rise, cash flow also rises and remains above NAV
3.4. Maturity: Cash flow will star growing more slowly or stop, net asset value continues to grow (more slowly)
3.5. Phase of decline: Cash flow value slips below neta asset value
3.5.1. Net asset value becomes particularly speculative
3.6. Values
3.6.1. Net asset value
3.6.2. Peer-comparison value
3.6.3. Intrinsic value
4. Discounted Cash Flow Method
4.1. It aims to value the company as a whole
4.2. Explicit Forecast Period: specific cash flows over a certain number of years.
4.3. Free cash flows measure the company´s cash-producing capacity. Future cash flows are based on projections
4.4. Business Plan
4.4.1. A) Business Plan Horizon: Explicit forecast period which corresponds to the time which the company will live of its current configuration
4.4.2. B) Terminal Value: Gordon-Shapiro Formula: normalized cash flow that grows at a rate out to perpetuity
4.5. WACC= discount rate
4.6. Net Debt is composed of financial debt net debt of cash, net of cash, cash equivalents and marketable securities
4.7. Use other valuation elements
4.7.1. Provisions
4.7.2. Unconsolidated or equity accounted investment
4.7.3. Tax-loss carry forwards
4.7.4. Minority interests
4.7.5. Dilution
5. Value Equity Methods
5.1. -Direct Method: values equity directly. -Indirect Method: values the firm as a whole then subtracts value of net debt to get equity
5.1.1. Two approaches:
5.1.1.1. Fundamental Approach: attempts to determine the company's intrinsic value.
5.1.1.1.1. Values the DIVIDEND DIsCOUNT MODEL (DDM) or the DISCOUNTED CASH FLOW (DCF) method
5.1.1.2. Pragmatic Approach: Peer comparison method, values company by analogy with other assets or companies of the same type.
5.2. Sum of the Parts Method: values company as sum of its assets minus its net debt
5.3. Discounted Cash Flow Method: applies investment decision techniques to the firms value calculation
6. Comparison of Methods
6.1. If markets are efficient, all of the valuation method should lead to the same valuation
6.2. Sum of the Parts vs Discounted Cash Flow
6.2.1. SotP > DCF
6.2.1.1. Company is being valued for its past than for its outlook for future profitability
6.2.1.2. Company should not invest but divest
6.2.1.2.1. Liquidate its assets to boost profitability and improve the allocation of resources
6.3. Comparison values vs DCF values
6.3.1. Value obtained via comparison > DCF-based value
6.3.1.1. The company's managers should thing about floating the company on the stock exchange
6.3.2. Value obtained via comparison < DCF-based value
6.3.2.1. Wait until more if the long-term growth potential in the company's business plan feeds through to its financial statements before launching an IPO
6.3.3. Transaction Multiples value > Market Multiples
6.3.3.1. Organize a trade sale by soliciting bids form several industry participants
6.4. Sellers favor DCF method
6.5. Buyers use the peer-comparison method to justify a lower price than that resulting from the DCF
7. Premiums and Discounts
7.1. Strategic Value and Control Premium
7.1.1. There is no real control value other that the strategic value
7.1.2. When control of a company changes hands, minority shareholders receive the same premium as that paid to the majority shareholder
7.1.3. Control Premium
7.1.3.1. Derives from the Industrial, commercial, administrative or tax synergies the new majority shareholders hope to unlock
7.2. Minority discounts and Premiums
7.2.1. a shareholder who has the majority of share may be forced to pay a premium to buy the minority shares