Company Valuations

The University of Auckland Business School
Auckland, New Zealand

Course Format: Classroom | E-learning | Virtual Class | Online/Live | On-site/In-house | Blended | Self-paced

Course Description:

'' 1. Understand the principles of company valuations.
2. Learn the different valuation methods that are used in practice.
3. Demonstrate the relation between the different methods.
4. Derive the cost of capital, and to apply appropriate discounts in arriving at a final valuation.

You will gain hands-on experience in preparing valuations under the supervision of the presenter. This will enable you to appreciate the intricacies of company valuations, provides you with an opportunity to ask questions, and gives you the practice and confidence in carrying out a valuation.

Topics Covered

Fundamental to any valuation exercise is an understanding of the company’s business, its strategy, competitive advantage, and the drivers that affect its cash flows. The course analyses a company’s cash flows by separating them into cash flows from operating, investing, and financing activities. The interrelation between these cash flows in computing the free cash flows to the firm and the free cash flows to equity holders is illustrated, as these free cash flow numbers are used in the valuation of the enterprise (firm) and equity, respectively.

The course examines the methods that are frequently used for company valuations. It commences with the familiar Dividend Discount Model (DDM), which is then extended to the Discounted Cash Flow (DCF) model, probably the most commonly used method for company valuations. The relation between the DCF model and a less frequently used accounting-based Residual Income Model (RIM) is then examined, including an explanation of their equivalence and how the Price to Book (PB) ratio is derived.

Valuations require the use of discount rates to discount the relevant forecasted valuation attribute. The course examines how one goes about computing the cost of capital, including the cost of debt, the cost of equity, and the weighted average cost of capital. Estimating the cost of equity using the Capital Asset Pricing Model (CAPM) is illustrated, together with an explanation and application of the role of betas in the estimating the cost of equity capital. The effect of company size and dividend imputation on the cost of capital is demonstrated.

The course examines the discounts that are often applied to valuations. These include discounts for a lack of control, illiquidity and lack of marketability, and unsystematic risks such as dependence on key personnel and key customers. These discounts are particularly relevant in the valuation of small, private, and public unlisted companies.

Values derived using these methods are benchmarked against comparable companies, referred to as compco analysis, using pricing multiples that relate the value to some measure of financial performance or financial position. The course will examine the rationale and use of pricing multiples such as Enterprise Value to EBITDA (EV/EBITDA), Enterprise Value to EBIT (EV/EBIT), Enterprise Value to Sales (EV/S), Price to Earnings (PE), and Price to Book (PB).

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Elements of this syllabus are subject to change.

Phone:0800 800 875

School Address/Venue(s):

The University of Auckland - Business School,
Graduate School of Enterprise.
Private Bag 92019, Auckland
New Zealand

Jobs & Resumes: Auckland
Houses & Roommates: Auckland
Travel Agencies: Auckland

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