Company Valuation: A Guide for Analysts, Investors, and CEOs

This session explains the main items of the income statement.

We discuss the main items of the balance sheet.

We discuss the most common ratios, including cost ratios and turnover. These can be used to conduct an initial analysis.

We derive the net operating profit less adjusted taxes (NOPLAT). This measure captures the money made from the business.

This session derives the invested capital, i.e., the money needed to run the business.

We derive the cost of capital (WACC) and discuss tax shields for interest expenses.

Using NOPLAT and invested capital, we measure a firm's profitability based on the return on invested capital (ROIC). This measure is superior compared to ROA or ROE.

We discuss organic and external growth through M&A. In addition, we explore exchange rate effects.

Finally, we derive free cash flows based on NOPLAT and the change in invested capital.

We introduce the main ideas of DCF models and demonstrate the building blocks using examples.

The two value drivers, ROIC and growth, are used to forecast free cash flows. We derive a formula for the entity value expressed as the current value of NOPLAT, constant value drivers and cost of capital.

We derive the formula for the entity value expressed as the current value of NOPLAT, constant value drivers and cost of capital.

We link free cash flows to revenue forecasts using ratios.

We derive the entity value from the operating value. The latter refers to the sum of discounted future free cash flows.

Finally, we derive the value of equity from the entity value, which leads to a fundamental share price.

DCF models should be adjusted for the timing of cash flows during the year.

Companies can exist without any upper time limit. Hence, we need to construct a continuing value.

I walk you through a worked example of a DCF model. All aspects of the model are discussed step-by-step.

Why do we need to consider additional adjustments? This lecture explains the underlying reasons.

This session discussion finance and operating leases. Do we need to adjust financial statements?

We discuss the impact of pension plans on financial reporting and how to adjust accounts.

Some provisions are operating expenses, but some are used to smooth income. The latter needs to be removed from NOPLAT. Additional adjustments to invested capital or debt might be required.

This session discusses goodwill and acquired intangible assets. How should be adjust financial statements?

Should we add some intangible assets to invested capital?

This session discusses operating cash taxes and their limitations in the context of company valuation.

How should we treat equity investments in company valuation?

Benchmarking is an essential step in company valuation. It helps to challenge your assumptions.

This session explores NEXT, a leading UK retailer. We dive into the financial statement and discuss adjustments.

This session covers the Irrelevance Theorem, which states that capital structure does not affect firm value. However, if assumptions are violated, increasing the level of debt might be beneficial.

We discuss positive theories of capital structure and outline our approach to determining optimal debt levels. Finally, we calculate the value of the tax shield.

Increasing debt generates a tax shield as interest expenses are tax-deductible. This session discussed the valuation of tax shields.

We illustrate the steps to value tax shields and derive optimal debt levels.

We discuss multiples, such as price-earning ratios, and their use in company valuation. Limitations need to be considered carefully.

Entity value-based multiples and EBITDA are more robust measures. However, certain changes in non-operating assets might drive even robust multiples.

We decompose NVIDIA Corporation's share prices into EPS changes and growth expectations. Was the tremendous increase in the share price justified by earnings growth? Or does the market have unrealistic growth expectations?

We explore Tesla's implied growth rate based on the current market valuation. Are these growth rates realistic?

Timing matters in many contexts, e.g., M&As, market entries, and exits. We explore stock market valuations, the housing market, and the market for corporate control.

An asset-based valuation method is needed when analysing companies at the exploration stage in the oil, gas and mining sector.

Real estate businesses can be analysed using our DCF-based valuation approach. However, it depends on the business model.

Banks require a different valuation method based on equity cash flows and required equity. We explore income sources, operating costs, assets and liabilities in banking.

To value startups, we start with analysing their business model. We will discuss an example exploring the valuation of Purplebricks.

This session briefly discussed sum-of-the-parts valuations. We explore business segments and business groups operating in different industries.

We discuss synergies and other merger motives.

The market response tends to be negative for bidders and positive for targets. We discuss the success factors of M&As.

We conduct a sensitivity analysis to assess the impact of changes in input prices on free cash flows. In addition, we discuss a two-way sensitivity analysis by changing input and output prices.

Scenario analysis allows you to change several drivers at the same time. We use narratives to connect value drivers. Scenario analysis is useful for valuing start-ups, as they lack historical data.