Corporate Valuation
Methods of Corporate Valuation Prof. Ian H. Giddy, New York University | What is my company worth? What are the ratios used by analysts to determine whether a stock is undervalued or overvalued? How valid is the discounted present value approach? How can one value a company as a going concern, and how does this change in the context of a potential acquisition, or when the company faces financial stress?
Finding a value for a company is no easy task -- but doing so is an essential component of effective management. The reason: it's easy to destroy value with ill-judged acquisitions, investments or financing methods. This article will take readers through the process of valuing a company, starting with simple financial statements and the use of ratios, and going on to discounted free cash flow and option-based methods.
How a business is valued depends on the purpose, so the most interesting part of implementing these methods will be to see how they work in different contexts -- such as valuing a private company, valuing an acquisition target, and valuing a company in distress. We'll learn how using the tools of valuation analysis can inform management choices. Outline * Asset-Based Methods * Using Comparables * Free Cash Flow Methods * Option-Based Valuation * Special Applications Asset-Based Methods
Asset-based methods start with the "book value" of a company's equity. This is simply the value of all the company's assets, less its debt. Whether it's tangible things like cash, current assets, working capital and shareholder's equity, or intangible qualities like management or brand name, equity is everything that a company has if it were to suddenly stop selling products and stop making money tomorrow, and pay off all its creditors.The Balance Sheet: Cash & Working Capital
Like to buy a dollar of assets for a dollar in market value? Ben Graham did. He developed one of the premier screens for ferreting out companies with more cash on hand
Finding a value for a company is no easy task -- but doing so is an essential component of effective management. The reason: it's easy to destroy value with ill-judged acquisitions, investments or financing methods. This article will take readers through the process of valuing a company, starting with simple financial statements and the use of ratios, and going on to discounted free cash flow and option-based methods.
How a business is valued depends on the purpose, so the most interesting part of implementing these methods will be to see how they work in different contexts -- such as valuing a private company, valuing an acquisition target, and valuing a company in distress. We'll learn how using the tools of valuation analysis can inform management choices. Outline * Asset-Based Methods * Using Comparables * Free Cash Flow Methods * Option-Based Valuation * Special Applications Asset-Based Methods
Asset-based methods start with the "book value" of a company's equity. This is simply the value of all the company's assets, less its debt. Whether it's tangible things like cash, current assets, working capital and shareholder's equity, or intangible qualities like management or brand name, equity is everything that a company has if it were to suddenly stop selling products and stop making money tomorrow, and pay off all its creditors.The Balance Sheet: Cash & Working Capital
Like to buy a dollar of assets for a dollar in market value? Ben Graham did. He developed one of the premier screens for ferreting out companies with more cash on hand