current noncurrent noncurrent

current
+

I saTo
↑
ina
NBv =

-
a) -
-

b) -

- -

0
a
↓
T
-

Bet Baker Prove

f
BSmet
t
-

~
fors on book
value created
-

inetuents - green
-
brown existing ace
Sm buyny >

2)
-

>
existin
-

walls mergers

Advantages Discu

1) no future value only historial 1) I grove future

tangible assets 2) X service oriented

2) good for significant
3) good for Liqui process at value assets india 3) underest growth oriented

4) good for nature companies

4) Market conction x
5) financial stability metod
a) Book Value metod

lib Net bola

NBV = if
ter
w dride

NB share

b) Replaced Value

value using similar asses 7 NB

replant ,
and

age
siz

comp
adv
D know what asset to
adj

reproductive
cert
if no
replment d) Ligh value
value of
eg annist all parts of the car
adj happen at and part
just add repro adjustment

Wh in being ai

amount % X % + goodwill t arrout assets

· mestreet
Lay
term Lind +

diamet
lin re
b) Income based approach
>
-

good for value of returns it will

yield and income

>
-

measures total income a asset will generate

ma
1) Dividence /relavace Theory ii) bird in

and
price of stock depends Quided capagains
ability
or
sutanding
or
stock prices affected by
-
-

of the asset

- Accretion addtinal inplitted to ↑ value of firm

Earning : value

Dilution : ↓ J Consident in

sensitivity
analysis
> Ed Contol Prem--" + "to firm to goin
control
-

>
-

precedent trasac -

prev deals
or
experience being evaluated

(innced by RE or
put stods)
1) Weighted Aug Cort of
Cetal/WALL (min reg return

(W)
WALL +
= ↓

·be
Costotvity = R= +
B(km -
Rf]
I carp

-
CCAPM) = 5
Y % + 1 4
.

(3%)

e market risk
X =
5 + 4 2%
.

premium
-
-
92%

equity = Rf + B(Rm-Rf)
A Corp
13 %
3 %+
X(8))
=

n % = 0 08 X
.

1. Si = X

9 2%
.

P Corp
A Coup
11 . 8% = 4% + 1 3
.

(x -

)
4%

M Corp
78% = 1 .
3x -
0 052
.

C Corp >
14 30% (12 x)
= X 1, 25
-

+ %
2
-

1
.

.
6 = .
3x
14 50%
.
=
+ 0 13 1 25 X
x .
-
. x
2 =

- 0 . 0005 = -- 25x

2% = X
#
Net Oper Profit

xwa)
- -

LOGS
Income based -

a)

t
WALL-> min reg return of cost of capital

S
preakeven ???

y cost of dept
100 %= +

cost of eacity (selling shoes) marketrickhium Ex

-

CAPM =
Rf + B (Rm Rf)
- NetIncre

Rf dpxim
% share
+
of financing
cost of debt risk free rate + debt premium or credit

(ke +We) + (kxWa) crebt)

spread

to
tax

↓
not of

sure ing
Rf +
B(Rn Rf)
-

Pose84585 ; problems problem

6) EVA = Earning-Cost of Capital c) :

Earning Capitalizatio
EXP
>
-

Clar rate -
Future Earnings
problem /
Required return %
WALL

itment
 Disconte Cash floor's

TDA -> based on operations

NI Int +
+
Tax + Dept Amort
=

EBDN
MH
Operatios who tax
EBIT my incre

= Revenue -
OPEX -
depo-amost
omula
!
age -f

sweet
similar used assets similar
or
engineering
size >
-

real prop ; it can pood same volume al same size

comp -
distinct ;nigt be fondis

a) Asset Based
similar
separate assets

ne

ruthoncurre
no
asset (over under

=
or
met

curren noncrea
M

i) NBV =

p 35 .

of similar aspects
cost
company value
-

ii) Replacement
UIreplacement
-
value a ad

per share

eg 50% NCA ; est rep value 150%; remhalf

.
est RV 75%

-fit
RC
est GM
(BIdg)
=

417
cr = pr

so BV-co

Im x 50% x 150% = 750K

Sol :

(adj N(A) (A)

Im x50% x 75% =
375k
+

CNCACI
Prep
-
Gooa

Total Add Wan

>
-

+ Curret Assets Soo oodou

- - -

Total Asset RV , 000, 000

1625

=
725
↑
 -
3

iii) Reproduction Value Method

iv) Liqui Value metrod

=
otcapitalasdriveied rous
return
a) CNALL
b) Income based Approach

t
b) CaPm

a) WALL-> min reg return of cost of capital

S
preakeven ???

y cost of dept
100 %=

I
+
-

cost of eacity (selling shoes) marketrickhium Incre

CAPM =
Rf + B (Rm Rf)
-

(ke x
We) + Byxiw Shreffinan , is
cost of debt risk free rate + debt premium or credit

spread

to
tax

↓
not of

sure ing
Rf +
B(Rn Rf)
-

Pose84585 ; problems problem ast earrings

expected Estea
,

relatinatio of
,

J
of return
(CAPM)
6) EVA = Earning-Cost of Capital 2) :
Earning Capitalizatio/Equity Value

i) fixed

Farmer
↓
reasonable mess of
earnings
Clar rate Equity value =

Fue problem /
COC WALL
appropriate
↓
itment
Earnings- COL

ii) Unriable

netchflow +
IdSets =
Earity Value
-
Dred ,
cash flor met

i)

* if BV persuae
=Cord/common)

2 methods :

iii) 1) Emperical/statistics
or guide transac method
T

a) Comparative data/comp
private company sale . transas
method

b) Guideline Public company data

in) stock price , in PSE

of Prior Transaction method

↓)
historical transaction in secrtis
of business evaluation

2) Heuristic

EBITDA - > based on operations

NI Int +
+
Tax + Dept Amort
=

EBITDA Margin

=
Operatios who tax
EBIT my incre

= Revenue -
OPEX -
depo-amost
 F)
Chapter 1 "Fund .
Prin . ofral .
"
(p .
17 -

p .

20) (#30-40 To -

mini
&
SFANTL
Key Principles in Valuation

1) Value >
-

specifictive
vare varies bandon
-

generate future cash flows

-

value
3) market distate "approp . rate of return"

4) Firm value impacted by underlying "net tangible

assets"
inf
5) Value - > transferability of future cash flow
(potential,
6) value " by ligridity (d(s) -

-te
"Asset Valuation" (p r 2 Based . 33 - p.

4)

a) Book Value Method b) Replacement Value metod

value ic acctry records () BS or finpos)
-
- cost of similar assets as of valuation date
-
current (w/in 12 mo .
]
noncurrent (wore than R no
)
.

value shall be adj to > relative cost equivalent to replace

-

-
value or
-
transparent view s more verifiable - -

Brhistoa
-factors' -

-
i) Age >
-
similar aged or
engineering design
- X accout for full value of eet assets
ii) size >
-
fixed assets

Totali a
iii) Compadr . >
-
distinct ;
ot Assets
=
-

IVBV # OS

Replace
replacement d
.

c) Reproduction Value
-

if no external into avail -

-
est cost of repro ,
creating , developing a similar asset
d) Liquidation Value method
-
requires reproduction cost analysis
considers salecevalve
internally developed
-

-
value =
amount realize at end of its life
- convinient
-

Limitation : FV not included

-
limited X in calcu
H

Reprovalue = -

wr
V
I To be continued
 Chapter 3 "Liquidation Based Valuation"

2
< GO
Significat
Liquidation Value
=

General principles
~
in exp .

↓
-most ~
-
doubts in
going concern
ability NAV
conservative approach
-
LV :
-
captures markdown markups -
> value of if to dissolve and
company sell assets · If LV > income based :
indiv

use LV LV
assets sold piecement ·
If bus is limited lifetime :
) known as "Net Asset Value" terminal value based on LV

reduces firm value All cost DEDULTED

may cont to crode

Non operating
.

Assets
should
be valued using liqui method
·

eg perishable goods

sell at discount
·
Liqui Valuation used if bus
continuity
-
is dependent on
management
who will just
if LV > going concerned = significat business leavey

? * LV method be used
can as
benchmark
event transpired -
& profitable = LV < MP
LV = base price or
floor price of firm LV
Declining Shreor
>
=
- -
> resulti n
DONT wisk free
use for profitable or
growing companies arbitrage
profit

*
MP < BU False
X
(NEVER] -T

8
Types of Liqui
Formula :
i) orderly liqui
terminate aftera years
sold over
orderly period to attract > generate ↑
-

an

z]
most for assets
remaet pol
money
-
open market w/ reasonable time
P of Sale of Asset >
-
x

ii) Forced liqui

-

(Pr of cost for termination 3 settlement) >

tred -
x
O
sold quickly debt Prof.
(PV
x
as possible rem

charges)
-
-

tax +

bankruptcy is filed
-

- rish sale : lower prices

-
-

↓ LVh
Lu

F i
/ terminated gr3
Br x
⑪Pr >
-

Cash Asset adj Value >

-

(PV
-

can 1)
orany
net auch flow x of
-

red
+ SD
↑ "
"(Prof
D
- Prot
Pr cash inflow

[cash flow x
PV]
LV = sale of assets
-

payments -

liqui cost
-
a price

Tale+ Asset >

-
-
Limbs = Net Value
 =sit
OPEX
Chapter 4 "Income
Cashflow
Based Valuation"
-

value
caprate:
↑
-
sp-premium
b) Capitalization of Earnings Method
4) Economic Value Added
value >
-
anticipated returns op income earnings
asset
-

to value
-
most conventionalway ↓ based
-
convinient
ability of firm historical earnings
measures to support its COC
-

using earnings S
excess of
↑

earning COC -
-
-

expected earnings
-
↑ excess ; better for firm
- Greenfield inv (no historical reference)
- elements :

i reasonableness of earning or returns -

anticipated earnings : Caprate (CO2)
ii) Appropriate LOC
-
relationship of
i) est earnings

EVA ii) expected yield of reg rate of return

Earnings
COC
= -

iii) est equity value

(Investmen let
Fixedity =Farnis see
-d value
investment

WALL (min reg return of COC) Variable

>
-
I all the arg
a in
Cent
inebt)
NetCash+ idle
share

(ke +
share in
-

We) + (ka x
P

(a) Equity Value=

1 assets

↓ ↓
Rf + B (Rm -

Rf) (Rf + dpxinv)

Cnet of +x)

equity cost of debt

cost of + c) Discounted Cash Flow Method
-
most popular method
-

-
most sophisticated approach for Corp value
-

more verifiable
-

Equity Value >

-

PV of proj Net Cash Flow

·

assumes a terminal
value

W
I continuation
 Chapter 5 "Discounted Cash Flow"

2 levels of Net Cash Flow :

I
ii] Net Cash Flow to Equity
i) Net Cash Flow to firm

I
-
cash avail for common equity participants or shareholders
-
cash flow avail to parties who supplied Capital (lenders > shareholder after
paying OPEX satisfying oper) fixed capital reas .
2 settling
after OPEX (ultaxes) and investing cap expecatures and cash flow transactions
involving debt providers) preferred shareholders.
working
Capital.
avail cash for dividends shareholder
-
level of to common

-
emcompass cash flow avail to all investors - debt or
equity
-
less volatile compared to earnings
bus act its NCF]
-
Enterprise Value [theoretical value of .
by
↓

Net Cash Flow to Firm

basic premise

I E
for corp
valuation
EBITDA Margin =
+ Proceeds from Borrowing
-
Debt Service
- NCF
↑ proceeds from Preferred Shares Issuance
~
operating
X
financing
easy

-DividedonPeter
NOF
~ investing -

I
&approach) ed from NI (indirect

NI avail to common shareholders

Based
(indirect) From NI

NCF to firm
+ Alon Cash charges (net)
I proceeds from
borrowing
↑ Interest exp (net of tax)
debt
servicing
-

& Adj in Working Capital ↓ proceeds from PS issuance

Net Inv in fixed Capital
>
-

-
a
Equity
of fixed Capital

punt sale
Invest

& Statement of Cash Flows

& From
& statement of Cash Flows N CF

proceeds
to firm

Cash Flow from Oper Act

+ from
borrowing
debt service
+ Int exp (net of
tax)* only
from
if

oper
deducted -

+ proceeds from PF issue

Howinvesting
Activitieas

- Dir onBearity
=

Ftfrom
+

1
EBITDA
EBITDA

Taxsarings

Working
,
net of

on
Taxes
Noncash

Capital Adj
Charges I EBITDA
+

+
NCF
proceeds
debt service
to

proceeds from
from
Firm

borrowing

PF issue

1
- Investment in Fixed Capital

-
art
NCF
Additional Ch3 DIT

Si
EBITDA Rev
NCF EBITDA -Taxes CAPEX
= =
-

-Low NF + depr + intest exp

-
+
Rev
NCF =
butdate COPEX)
in
solving (depr)
NI
bel

inded

EBITDA
Multiple
S
L
EEX
~
EBITDA = Revx multiple

NDV

NCF x of 1)
-2
NCFX (ProfI]
 Chapter 6 "Market Approach Valuation"
Terminal Value >
-
no
perfect approach ; depends on risk appetite

G
GLBOs operate to
perpetuity risks) returns should be
guantified
-

-
econ value expected to be stable
a Emperical/Statistical Approach
Challenge determine value
-
: to account returns
generated perpetuity research and
databaseprocessing
econ in
- uses

"value requires references ) evidences

perpetuity
-

in or
going concern enviro"
-trend analysis and bench
marking
1 Liquidation Value
i) Comparative Private Company Sales Data
.
2 Est Perpetual Value
comparative transaction method
farthest cash flow est . - [COC-growth]] ) guideline transaction method

finding out of prior transactions

-farthest
N -

IV = > growth
~

-
use exact
soure data
industry
is reliable and comparable

a)
terminal
value
-
insufficient market evidence in some industries "

latest ii) Guideline Public Company Data

[Fy-x0 (minority stake)

-
Obtain stock price from public market
9 =
% appropriate
-not for
early stage I small business "
-

benchmark > size

growth
-

potential , capital structure , business life

beg
cycle
-

Plenty transaction data avail I

If historical growth pattern undetermined : -
consistent > reliable
H

TV
=-onlycocreata iii) Prior

looks
Transac Method

historical transac in sec of business undervaluation

up
- .

benchmarks : timeline of transac , econ situation

3
. Constant Growth
- challenge to determine reg return
insted use growth rate as it
b) Comparable Company Analysis CLA
proxy
-

growth constant and significant

~
uses relevant drivers for growth
-

.
4 Scientific Estimations factors considered :

guesstimates not prevented similar operations similar

industry
-

Total s
·
absolute should not be compared
-
equity values still based on negotations ·
variables used must be same
·

period must be comparable

nonquanti factors should

·

be considered

>
- comparison of strategy structure) size

vs . earned
percieve
Persharea appreciation

persharea
div

P/ ratio:
rec.

on market

Davidad
persa
↑ a
are

Divided Yield

PErctoint
if Rev = X

appetiti
B HEBD

Rev x EBITDA
margin
nev after deducting
deductive fixed cost
OPEX
tax
&
, before
non cush exe
>

Mehave
-
-
=

NB EBITDA Multiple =
·
BV per share =

commo to
↓ Reu-OPEX + depr
&
 b) Merger and
Acquisitions
2) Hreristic Pricing Rules Method
asset to another
acquire another
combine
-

company to
company
professionala
-
use expert optio
of

Merger 2 companies I
~
= >
company
-

position to est bus

-
selling price

take over
-
pricing multiple is made available
-
Acq =

often relied to expands others from distress

pricing formulas H popular
strategy save
-
on -

-not backed by statistical analysis 1 -

New to cover fixed costs or asset based
-
availabilty if non brokered "

Top reasons

Chapter 7 "Other Concepts and Valuation Techniques"

a) Due Diligence
-
minimizes investment risk ... undertaken after intet to purcha investment

validates representation made by the seller Non negos :

examination of records (advertised
benefits) Company
-

1)
willing to take risk
-
PH RA 8799 Sea Rey Code & benefit
2) multiple bets must be
made

Types 3) acquiring firm must be patient

: Due Diligence According to Executor

-
5 stages PIVNI
>
-

Corporate Due Diligence

1 Pre acquisition Review >
-
internal eval
> Private
.

Due Diligence
Investment Opportunity Scanning
.
2
> Government Due Diligence
- >
-

find interested parties

.
3 Valuation of Target Investment >
-

sensitivity analysis must be conducted

ii) Due diligence according to subj
.
4
Negotation sweet spot price
>
-

>
-
Hard due diligence >
Integration of agreement
-

.
5 execution
>
- soft due diligence

>
-
Combined due diligence
Val metrods used
Factors : a
Discounted Cash Flows

>
-
Market Capitalization
b .
Comparable company analysis
>
-

Performance/profitabilty Trend Analysis 2

Comparable Transaction Analysis
>
-

External Environment Analysis

>
-
Manageret S Share Ownership c .
Divesture
-

disposal of asset via 3rd

party
>
- Financial Statements -
-
business
-

sale of non core

segment
>
-
Stork Price History partial full + depends
-

on
management
or

> Stock dilutions

-

Possibilities
>
-

portfolio management
Market Expectation
-

-
enables companies to improve cash flows , discontine
>
Long) Short term risks
-

·
per segments that arent aligned , create additional
shareholder value
 Divesture cont .
d) Other Valuation Techniques

e
i) ROI based
assets generated
by investment
-

company value based investment

-

-
useful his investment place
>
-
gets a
sense on
to

subjective "
-

-
investor or
buyer wants to know :

·
length of time to recover
Types of Divesture :
·
rate of return

a .

Partially sell offs agressiveness

·

attractiveness
sell only portion of business to raise funds
-

.
b Equity Carve Out
-
IPG

> separate legal

a
Spirit off -
entity
-
business segment of parent company
made independent
- shares distributed to existing shareholders ii) Divided Paying Capacity Method
. split off
d -
"dividend payout"
market
approach
independent
-

business segment of parent made

company
-

dividendezd
-

uses est future

-
i) exchange shares ii) retain parent shares -

using 5
year WA of

Impact : dir yields

-
NO impact to
selling companys value (DV =
GC) links the
relationship of

Saventure
-

y
value sellingon
of
a
)
·
est about of future div paid out
WA dN
b) yield
2) est value of business

Minimum Price dividends linkedol

liquidity
-

[Investment + (Investet x ROI)] X

selling
computations :

Business Value WA profit

Busiel Value x WA dirpayout =
future dividends
EBIT X multiplier SPY Di pot
T
And - WAX
or

FreDr
imme
Value of
field
=
company

=
If w/ working cap :
* for stable companies

ASEF ityorx
working cap="
&
-
Ch -

Value b) Div

NI-
(Dirfield

> GP-OPEX
ratio) &) Earning Valment

a) BU (Debt enty ratio)

seiling
X A
EBA
div
Assets
on WIX
CA + NCA = rat

L
= E
X - >
fiab

xx) -

31 work cap
x
Ans

Sp
%
= X

Value= d
>
-

= v or

value x Sp%
equity
= v
 , addbak
Prob
Solving
Ent -
if subtracted in per or
is

-
-5-
P 169
P 10 #46
.

a
#14810

e e

I LV 2 M
#

1) E O-
↑
Im
for district

52/50 -
unsec bonds

Net Value
O
cooks
ord annuity

·
O

sinEa
8 5Mx 30% = 25 5.
25 5 1
4
.

05

4310
- Cash flow

i
) inflow (CollotAR , Rev)

-
(outflow) (pagret expense purch invest)
-

NCF

·
EBITDA writ
Arg

&
% =
FDADiA
EvA = COL EBITDA -> based on operations
Res

·
NI Int +
+
Tax + Dept Amort
=

EBITDA Margin

=
I
-

Operatios who tax

Incre EBIT my incre

= Revenue -
OPEX -
depo-amost
 market
cunsatisfactory) company > selling opp

⑫ratio
-

PLE ratio (profitable) tiPl Cash ratio 2 .

g investor >
-

Buying opp
> -

4 >) undervalue by marketa

ric -mata < / overvalve company I sellin open

investor I
buying open

⑪
yiald ratio
↑

↓
ratio earnings

↓
↑ dir distric

set
Fun
Dir per
EBITDA Multiple

-E
- ecore a

Returned
Earnings
if trator

market

Frnings

-30

II
:9

Ch4
&

10th
+

chstral

i
Value meoa

Rackment ove
method ???
12

P
F 132 19
20

⑯
is
QuiZ

&
>
-
e

O
O
E

O
-O

O
↑ e

8
O
e

& E