Valuation .

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Valuation. Creation of value Valuation of a stock listed company Valuation of a non listed company Net Asset Price-earning Ratio Present Value of Dividends Present Value of Free Cash flow. Creation of value. The goal of any company : to create value
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Valuation Creation of significant worth Valuation of a stock recorded organization Valuation of a non recorded organization Net Asset Price-gaining Ratio Present Value of Dividends Present Value of Free Cash stream

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Creation of significant worth The objective of any organization : to make esteem This implies : increment the estimation of the organization for the shareholders With full regard for the lawful system social, financial, natural controls And for the various partners workers clients providers neighbors

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Creation of significant worth How can the esteem be expanded ? by purchasing resources at a value lower than their monetary esteem land : purchasing amid a dejection (emergency) by offering resources at a cost higher than their financial esteem land : offering amid a blast

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Creation of significant worth The most ideal approach to make esteem : Innovation presenting new items Microsoft Cellular telephones presenting new generation forms Car makers enhancing the profitability of work enhancing the nature of items and so on

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Market capitalization of a stock recorded organization For recorded organizations the share cost is known every day the estimation of the organization is equivalent to the value share increased by the quantity of shares V = p share .n offers V = Market capitalization ("advertise top") If the market is effective the Market Cap is dependably the genuine estimation of the organization Ef ficient showcase implies that whenever all the market has all the data on the organization

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Fair estimation of a stock recorded organization There is regularly a contrast between the share cost and the genuine esteem unequal appropriation of the data great or terrible news for the future not known by the market from inside data … to ... inside exchanging blasting or bubble impact (brain science) confusion of the realities by the market

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Fair estimation of a stock recorded organization Even for a stock recorded organization it is helpful to figure a " reasonable esteem " in view of : All the data accessible on the organization Comparison of the share cost and of the monetary proportions with comparative recorded organizations It is intriguing to purchase When the share cost is lower than the reasonable esteem It is fascinating to offer When the share cost is higher than the reasonable esteem

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Valuation of a non recorded organization A valuation of a non recorded organization must be known when : Shares of the organization are sold The deal cost is known But it is conceivable to assess the estimation of a non-recorded organization by utilizing distinctive strategies Based on the book esteem Based on correlation with comparative recorded organizations Based on the present estimation without bounds budgetary streams of the organization

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Net Asset Is the book-estimation of the value a right valuation of an organization ? No : distinction between book-esteem and market cost of the benefits & liabilities It is conceivable to supplant to be decided Sheet all the book-values by the market costs and to ascertain an updated estimation of the value Net Asset = Assets (at market costs) - Liabilities (at market costs) The Net Asset is a valuation of the organization

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Saigon Hotel - Net Asset (000 US$)

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Saigon Hotel - Net Asset Additional data The organization claims the inn assembling The book-esteem is 6.045 and the market value estimation 9.055 The executive is a workmanship authority and the organization possesses craftsmanship pieces The book esteem is 125 and the market cost 850 There are terrible receivables for a book-estimation of 45 In the money situation the organization possesses Microsoft offers purchased in 1992 for 10 and whose present stock cost is 100 The duty rate on all benefits is 40% What is the Net Asset of the Saigon Hotel ?

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Price-acquiring Ratio A second valuation technique at an organization is the Cost Earning Ratio (PER) The Price-procuring Ratio is equivalent to the estimation of the organization separated by the net result PER  V/EAT For recorded organizations it can be figured straightforwardly by partitioning the share cost by the net result per share eps = EAT/n offers PER = p share/eps

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Price-winning Ratio The PER is higher for an organization with higher development prospects for the income the dangers being equivalent with lower hazards the development prospects being equivalent The PER is distributed day by day in the budgetary papers on the money related Websites (cfr bourses)

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Price-gaining proportions Examples (Oct 30, 2001)

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Price-winning proportions Examples (Oct 30, 2001)

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Price-winning proportions Historic (Nov 2, 2000)

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Price-gaining proportions - practices What is the estimation of the Saigon Hotel in 2002 EAT = 432.000 $ PER = 15 High level because of fantastic area and future prospects Explain the contrast between the PER Coca-cola & Pepsico Compaq & IBM Which industry ought to have the higher PER power or telecom traditional telecom or cell organizations

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Present Value of Dividends Let us begin from an exceptionally basic approach Suppose that we realize that the normal estimation of the share of an organization one year from now is v 1 that a profit div 1 will be paid around then that the Cost of the Capital for this organization is r Then we can compose the condition for the Present Value of the share v 0 = (div 1 + v 1 )/(1+r)

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Present Value of Dividends We can rehash this computation by composing the estimation of the share at time 1 based upon the esteem and profit at time 2 v 1 = (div 2 + v 2 )/(1+r) thus on . . . v 2 = (div 3 + v 3 )/(1+r) We can then compose v 0 = (div 1 + (div 2 + v 2 )/(1+r))/(1+r) v 0 = div 1/(1+r) + div 2/(1+r) 2 +… + p T/(1+r) T

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Present Value of Dividends If we consider that the organization lives in unendingness we can compose v 0 = div 1/(1+r) + div 2/(1+r) 2 +… + div t/(1+r) t + … V 0 = DIV 1/(1+r) + DIV 2/(1+r) 2 +… + DIV t/(1+r) t + … Or v 0 =  t=1  div t/(1+r) t V 0 =  t=1  DIV t/(1+r) t

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Present Value of Dividends If we consider that : the organization will live in ceaselessness the development rate of the profit is steady and equivalent to g Then div t = div 1 .(1+g) t-1 Gordon & Shapiro demonstrated scientifically that v 0 = div 1/(r-g) V 0 = DIV 1/(r-g) obviously one must have r>g The lower the Cost of Capital the higher the esteem The higher the development rate the higher the esteem

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PV of Dividends - Examples What is the Present Value of the Quiz Company ? the following profit will be 12.000.000 $ the Cost of Capital is 14% the development rate of profit (never-ending) is 2% What is the Cost of capital of organization B ? the following profit will be 100.000 $ the present esteem is 1.000.000 $ the development rate of profit (unending) is 4%

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DCF display Present Value of Free Cash Flow An enhanced approach is to utilize the prospected Cash Flows from the Business Plan to appraise the esteem The Total Entreprise Value is equivalent to the PV of all FCF Entreprise Value = Equity + Financial Debt Free Cash Flow before Interest FCF = Net Operating Earning After Tax + Depreciation Net Operating Earning After Tax (NOPAT) = EBIT.(1 - T c ) EV 0 =  t=1  FCF t/(1+r) t The Enterprise Value is equivalent to the PV of all Free Cash Flows « Discounted Cash Flow Model »

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DCF Model How to utilize it ? Utilizing the Business Plan one can compute the EV Calculating the NOPAT and the FCF Problem : The Business Plan is made for a restricted timeframe 5, 10 or 20 years We have to appraise the estimation of the Cash Flows after the Business Plan period

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DCF Model Terminal Value The Terminal Value speaks to the EV for the ceaselessness after the end of the Business Plan period Based on the Gordon-Shapiro equation V T = DIV T+1/(r-g) or EV T = FCF T+1/(r-g) T = a year ago of the Financial Plan « Normalized » FCF for the interminability FCF T+1 = NOPAT T+1 Future capex = Future devaluation (keep the generation limit) g = never-ending development rate To be assessed carefully (2% to 4%) Total Enterprise Value is then EV 0 =  t=1 T FCF t/(1+r) t + (NOPAT T+1/(r-g))/(1+r) T

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DCF demonstrate Equity Value The Value of the Equity is equivalent to The Enterprise Value (EV) Less The Financial Debt (D balance ) All enthusiasm bearing obligations Long term Short term Eventually others (if bearing premium) Less Financial situation V 0 = EV 0 - D fin,0

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DCF - The Quiz Company

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DCF - The Quiz Company Calculate the best estimation of the present estimation of organization C if the Cost of capital is 14% if the Cost of capital is 12%

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Saigon Hotel – DCF valuation We will apply the DCF model to the Base Case Using an arrangement of suppositions Cost of Capital (r) From 8% to 12% Perpetual development From2% to 4% Example : The Base Case BPcons.xls - VALO!A2

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Saigon Hotel – Valuation Sensibilities Studies

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DCF – Decision device so as to pick the best situation Maximize the esteem

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Summary The Values of Saigon Hotel

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Conclusions of the lesson Creation of significant worth is the objective of any organization For a stock recorded organization the market esteem can be seen through the stock value the reasonable esteem can contrast from the market esteem For non recorded organizations there are diverse techniques to evaluate the esteem Net Asset PER PV of Dividends DCF Model (PV of FCF) The distinctive strategies can give distinctive qualities

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Synthesis of the course Begin with the methodology Build a Business Plan in view of the procedure With various key situations … and sensibilities considers The Financial Plan must be adjusted Measure and enhance the money related structure Optimize the ventures choices Net Present Value expansion so as to make esteem Valuation strategies Optimize your Business Plan

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