CLASS_02 - Lecture2:ValuationBasics FINA463:CaseStudies...

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1 Lecture 2: Valuation Basics  FINA 463: Case Studies January 17, 2012 Josh Pierce  piercej@moore.sc.edu
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2 This process involves the collection and evaluation of  information Translate expectations about the firm and its environment into  projections of financial performance In particular project pro-forma profit and loss statements   Use these projected financial statements to calculate future  Free Cash Flow (FCF) Discount the FCF at the appropriate WACC This gives the value of the firm  as a whole  (sum of the values  of all securities) Valuation Process: Summary
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3 Make sure to deal consistently with inflation. If you have projected nominal cashflows then you must discount  them at the nominal discount rate Be careful about the timing of the cashflows Most of the cashflows we discount when valuing projects or firms  are cashflows paid and received throughout the year, not just at the  end of the year An easy way to deal with this is to discount cashflows as if they  occurred in the middle of the year = - + + = T t t r FCF NPV 1 5 . 0 Investment Initial ) 1 ( Valuation Process: Some points to remember
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4 Valuation Process: Multiples Analysis Other Methods Besides DCF, use multiples analysis to convert projected  financial performance to values P/E and M/B ratios
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This note was uploaded on 02/17/2012 for the course FINA 463 taught by Professor Tsyplakov during the Spring '10 term at South Carolina.

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CLASS_02 - Lecture2:ValuationBasics FINA463:CaseStudies...

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