FINM3005 Corporate Valuation Lecture 2 Building a Company Model
FINM 3005, Corporate Valuation
Semester 2, 2014
Lecture 2
Building a Company Model
Lecturer: Jozef Drienko
ANU School of Finance, Actuarial Studies and Applied Statistics
Agenda for today’s lecture
1. Overview of building a company models and Assignment 1
2. Overview of the KGW valuation model
3. General advice on structuring your company model
4. Estimating ROIC (Return On Invested Capital)
5. Wrap-up . . . what’s next??
2
Company models
A company model is a representation of the financial accounts, designed so it can be filled right with forecasts (see KGW)
Output might include: cash flows and other items (e.g. EPS for multiples) to perform valuation analysis; growth rates; return on capital (e.g. ROIC, ROE, ROA); etc
Accounting identities are implicit in the cell links & formulas, i.e. balance sheet, income statement and cash flow statement are all integrated; accounts should balance (and be equal to published reports of JBH)
Certain items may be selected for drilling down / deeper analysis,
e.g. divisional sub-models; decomposition of revenue or costs (see examples from previous semesters)
See these Wattle Folders for examples:
– Assignments – Examples from Previous Semesters (with permission)
– Other Models and Information / Orica Model Jun10.xls (an actual model)
3
Assignment #1 involves building a company model
Assignment objectives:
1. Get a basic company model up and running (continuous revision expected)
2. Generate some sensible and realistic forecasts
3. Use the model to do a DCF valuation of existing operations (i.e. operations at they stand – no major variations in the company’s current business )
KGW model:
–. The model & related materials appear in “KGW Model” folder on Wattle
–. Made available as a backbone, thus saves building a model from scratch
–. The KGW model will need to be adjusted and enhanced
Tasks that need to be done:
Input the historical accounting data
Decide how to structure the model to support
Semester 2, 2014
Lecture 2
Building a Company Model
Lecturer: Jozef Drienko
ANU School of Finance, Actuarial Studies and Applied Statistics
Agenda for today’s lecture
1. Overview of building a company models and Assignment 1
2. Overview of the KGW valuation model
3. General advice on structuring your company model
4. Estimating ROIC (Return On Invested Capital)
5. Wrap-up . . . what’s next??
2
Company models
A company model is a representation of the financial accounts, designed so it can be filled right with forecasts (see KGW)
Output might include: cash flows and other items (e.g. EPS for multiples) to perform valuation analysis; growth rates; return on capital (e.g. ROIC, ROE, ROA); etc
Accounting identities are implicit in the cell links & formulas, i.e. balance sheet, income statement and cash flow statement are all integrated; accounts should balance (and be equal to published reports of JBH)
Certain items may be selected for drilling down / deeper analysis,
e.g. divisional sub-models; decomposition of revenue or costs (see examples from previous semesters)
See these Wattle Folders for examples:
– Assignments – Examples from Previous Semesters (with permission)
– Other Models and Information / Orica Model Jun10.xls (an actual model)
3
Assignment #1 involves building a company model
Assignment objectives:
1. Get a basic company model up and running (continuous revision expected)
2. Generate some sensible and realistic forecasts
3. Use the model to do a DCF valuation of existing operations (i.e. operations at they stand – no major variations in the company’s current business )
KGW model:
–. The model & related materials appear in “KGW Model” folder on Wattle
–. Made available as a backbone, thus saves building a model from scratch
–. The KGW model will need to be adjusted and enhanced
Tasks that need to be done:
Input the historical accounting data
Decide how to structure the model to support