Certificate in Company Valuation Modelling

DAY 1

Real Estate Investment: Basic Concepts

• Two General Classifications of Estates
• Estates Not Yet in Possession (Future Estates)
• Examples of Leasehold Estates
• Interests, Encumbrances, and Easements
• Methods of Title Assurance
• Abstract and Opinion Method
• The Title Insurance Method
• Limitations on Property Rights
• Notes and mortgages
• Seller financing
• Reconstructing a mortgage loan

Introduction to valuation

• The five myths about valuation
• The principles and practice of time value for money

Exercise 1: modeling a straight bond valuation

• Benjamin Graham’s safety margin
• Introduction to DCF
• Some useful Excel modeling tips

Exercise 5: modeling synthetic rating for a listed and a private company

• Cost of capital modeling
• The explicit and implicit costs of financing.

Meaning and importance

• What happens practically when companies don’t meet their cost of capital?
• The practice of changing assumptions in the stable growth period
• Some analysts don’t use CAPM. Practical alternatives?
• What does Warren Buffet use as cost of capital? Case study 1: calculating the cost of capital of Marriott

Financial Statements adjustment

• The reasons for adjusting financial statements
• Capitalizing operating leases
• The capitalization rate Exercise 6: modeling the adjustment to EBIT and adjustment to total debt
• Capitalizing R&D
• Nature of industry and how many years to look back Exercise 7: modeling the tax effect of R&D adjustment and final effect on EBIT Case study: capitalizing operating leases and R&D at Boeing

DAY 2 Free Cash Flow to Equity (FCFE) vs Free Cash Flow to Firm (FCFF)

• Meaning, measurement and modeling
• Which one to use? Why?
• Normalizing EBIT, capex and working capital
• What does and doesn’t capex include?
• Why we need the non-cash, non-debt working capital?
• Adjustments required if firms have negative working capital
• Marginal vs. effective tax rate
• Stable debt policy and FCFE
• FCFE and leverage. Is there a free lunch?

Exercise 8: calculating FCFF of a listed company

• Calculation of terminal value Case study 2: modeling the FCFF of Boeing

Estimating Growth

• The three ways of estimating growth rates
• Extrapolation and its danger
• High growth period vs. stable growth period
• Length of the high growth period
• Fundamental growth rate
• Effect of ROC and Reinvestment rate on growth rate

Exercise 9: calculating the fundamental growth rate of a listed company

• High growth rate estimation vs. stable growth rate assumption
• Real vs. nominal growth rates
• The three growth patterns and which to use

Exercise 10: modeling the three growth patterns Tying up loose ends

• Effect of management options on valuation Exercise 11: valuing management options of a listed company
• Effect of minority interest on valuation Exercise 12: applying relative valuation to minority interest
• Valuing operating and non-operating assets
• Effect of contingent claims Putting it all together Case study 3: full valuation of a cement company covering all the previous topics

DAY 3 Dividend discount models (DDM)

• Gordon growth model
• Versions of the model
• Issues in using DDM

Exercise 13: valuing S&P 500 using DDM Case study 4: valuing a utility company using DDM Free cash flow to equity and free cash flow to the firm:

• Adjusting the accounting records
• The cost of capital approach
• Effect of leverage on firm value Relative valuation
• Standardized values and multiples
• Three different ways to using multiples

Exercise 14: using regression analysis with multiples

• Earnings multiples
• Book value multiples
• Sales multiples
• Calculation of terminal value using multiples
• Presentation of a fully automated model developed by Hamed Behairy using multiples to screen for quality and cheap investment ideas worldwide.

Valuing financial services firms

• What is unique?
• General framework
• Excess return model
• Valuing financial services firms using DDM

Exercise 15: valuing Morgan Stanley using Excess Return Model Exercise 16: Valuing Morgan Stanley using multiples Valuing distressed firms and firms with negative earnings:

• Distressed firms: implications of viewing equity as an option
• Negative earnings: causes and consequences

Exercise 17: once off charge at Daimler Chrysler Exercise 18: temporary or sector wide reasons at Volvo

DAY 4 Valuing private companies

• What makes them different?
• Estimating the cost of capital for private companies
• Charging for higher risk: haircut from valuation or increasing the cost of capital?
• Estimating the size of liquidity discount
• Estimating the value of control premium

Exercise 19: modeling valuation of a private company Case study 4: Building a venture capital valuation model in Excel using sensitivity analysis for different exit options

• Using IRR in venture capital valuation
• IPEVCVG (International Private Equity and Venture Capital Valuation Guidelines) developed by 35 internatinal private equity and venture capital associations Real options valuation
• Introduction to Black-Scholes model
• Payoffs of put vs. call options and long vs. short options Exercise 20: Using Black-Scholes model to value financial options
• Real options: meaning and applications
• Valuing a patent Exercise 21: model of a pharmaceutical patent valuation
• Valuing natural resources as options Exercise 22: model of an oil mine valuation
• Valuing a contract with options to expand or abandon Exercise 23: model of value to expand operations of Disney in Latin America Exercise 24: model of value to abandon of Disney from a construction contract

Valuing properties

• Real vs. financial assets
• DCF, relative valuation
• Capitalization rates Exercise 25: valuing a building in New York Case study 5: valuing a piece of land in South Africa.General framework
• Choosing the right DCF model
• Choosing the right relative valuation model
• When should you use the option pricing model?
• Conclusion

DAY 5 M&A valuation and modeling

• Model-building process
• Key M&A model formulas
• Modeling the Acquirer standalone valuation (Excel Model)
• Modeling the Target standalone valuation (Excel Model)
• Modeling the combined valuation and synergy estimation (Excel Model)
• Modeling Initial offer price calculation (Excel Model)
• Modeling forecasted EPS of the Acquirer after acquisition (Excel Model)
• Modeling the combined company financing capacity (Excel Model)

Deal structuring and financing

• The deal structuring process
• What is the best form of payment? Why?
• Alternative financing options
• Common forms of leveraged buyout deal structures
• Analyzing leveraged buyouts
• Applying LBO valuation models
• Real life case studies

Alternative restructuring exit strategies

• Motives for exiting businesses
• Divestitures
• Carve outs
• Split ups vs split offs
• Spin offs
• Bust ups
• Real life case studies

DAY 1 course topics include:

• Execution of Operations
• Scheduling and Authorization
• Control of Production

DAY 2 course topics include:

• Control of Cost
• Management and Communication
• Quality and Continuous Improvement

DAY 3 course topics include:

• MORNING session
• Design Tradeoffs class topics
• AFTERNOON session
• Developing the Business Strategy
• Global Environment & Sustainability

DAY 4 course topics include:

• Operations Strategy
• Operations Strategy Choices & Financial Measurements
• Aligning Operations with Supply Chain Partners

DAY 5 course topics include:

• Infrastructure Systems
• Change Management
• End of Course Recap
• Exam preparation recommendations