Why Corporate Valuation? اهمية وأسباب تسعير الشركات

1

Why Corporate Valuation?اهمية وأسباب تسعير الشركات

You make financial decisions every day Brokers – advice and trading decisions Investors—buy and sell decisions Managers—implement operating decisions Financial staff—evaluate acquisitions

Success or failure depends on whether you correctly identify value

2

Goalsالهدف من هذه الدورة

المتخصصة Provide brokers, investors and managers with the

basic knowledge to value a company Use free cash flow valuation Use dividend discount models Use multipliers Use WACC Use Growth Use other pricing models

3

Our plan of attackخطة العمل

Finance requires a circular approach: you need to know finance in order to do financial analysis. You need to know how to do financial analysis to understand finance.

4

Three types of valueثالثة انواع للقيمة

Book value: the company’s historical value as shown on its financial statements.

Market value: the current price at which an asset can be bought or sold.

Intrinsic value: estimate of the value an individual buyer places on an asset.

5

Objective:الهدف

Objective is to provide a sound basis for estimating the intrinsic value of a stock.

This intrinsic value is also called its fundamental value.

The process is known as fundamental valuation

6

The three basic concepts of valuationثالث مفاهيم اساسية للتقييم

Investors can only spend cash so "Cash is good and more cash is better."

Cash today is worth more than cash tomorrow.

Risky cash flows are worth less than safe cash flows.

These three imply the value of a company depends on the size, timing, and riskiness of its cash flows.

7

Valuation of a Simple Companyتسعير شركة صغيرة و مبسطة

Investors are: Debtholders Stockholders

8

More investors…المساهمون وقيمة مساهمتهم

Simple Co.’s shares of stock also compete in the market for investors.

Stockholders are the owners of the firm, and the value of ownership is the value of the asset, less any debt that is owed.

For example: Suppose Simple Co. is worth $501 million. It owes $150 million to debtholders. So Simple Co.’s equity is worth $501 – 150 = $351 million.

9

The Corporate Valuation Modelنموذج تسعير الشركات

PV of cash flows available to all investors—called free cash flows (FCFs).

Discount free cash flows at the average rate of return required by all investors—called the weighted average cost of capital (WACC)

10

Steps in the corporate value modelخطوات استخدام نموذج تسعير

الشركات

Determine weighted average cost of capital Estimate expected future free cash flows Find value of company

11

Estimating the Weighted Average Cost of Capital (WACC)

حساب المعدل المرجح لتكلفة رأس المال

Company has two types of investors Debtholders Stockholders

Each type of investor expects to receive a return for their investment

The return an investor receives is a “cost of capital” from company’s viewpoint.

12

Cost of Debtتكلفة القروض

Simple Co.’s cost of debt: rD = 9%.

But Simple Co. can deduct interest, so cost to Simple Co. is after-tax rate on debt.

If tax rate is 40%, then after-tax cost of debt is: After-tax rD = 9%(1-0.4) = 5.4%.

13

Cost of Equityتكلفة الملكية

Cost of equity, rs, is higher than cost of debt

because stock is riskier. Simple Co.: rs = 12%

14

Weighted Average Cost of Capitalالمعدل المرجح لتكلفة االموال من

مصادرها المختلفة

WACC is average of costs to all investors, weighted by the target percent of firm that is financed by each type.

For Simple Co., target percent financed by equity: wS = 70%

For Simple Co., target percent financed by debt: wD = 30%

(More….)

15

WACC (Continued)حساب المعدل المرجح لتكلفة

رأس المال

WACC = wD rD (1-T) + wS rS

= 0.3(9%)(1 - 0.4) + 0.7(12%)

= 10.02%

16

Free Cash Flow (FCF)التدفقات النقدية الحرة

FCF is the amount of cash available from operations for distribution to all investors (including stockholders and debtholders) after making the necessary investments to support operations.

A company’s value depends upon the amount of FCF it can generate.

17

Calculating FCFالتدفقات النقدية الحرة حساب

FCF = net operating profit after taxes minus investment in operating capital

18

Operating Current Assetsاالصول التشغيلية - قصيرة االمد

Operating current assets are the CA needed to support operations. Op CA include: cash, inventory, receivables. Op CA exclude: short-term investments,

because these are not a part of operations.

19

Operating Current Liabilitiesالخصوم التشغيلية – قصيرة االمد

Operating current liabilities are the CL resulting as a normal part of operations. Op CL include: accounts payable and accruals. Op CA exclude: notes payable, because this is a

source of financing, not a part of operations.

20

Balance Sheet: Assetsقائمة المركز المالي - االصول

2001 2002 2003

Op. CA 162,000.0 168,000.0 176,400.0

Total CA 162,000.0 168,000.0 176,400.0

Net PPE 199,000.0 210,042.0 220,500.0

Tot. Assets 361,000.0 378,042.0 396,900.0

21

Balance Sheet: Claimsقائمة المركز المالي – الخصوم وحقوق

المالكين

2001 2002 2003

Op. CL 57,911.5 62,999.7 66,150.0

Total CL 57,911.5 62,999.7 66,150.0

L-T Debt 136,253.0 143,061.0 150,223.0

Total Liab. 194,164.5 206,060.7 216,373.0

Equity 166,835.5 171,981.3 180,527.0

TL & Eq. 361,000.0 378,042.0 396,900.0

22

Income Statementقائمة الدخل

2001 2002 2003Sales 400,000.0 420,000.0 441,000.0Costs 344,000.0 361,994.2 374,881.6 Op. prof. 56,000.0 58,005.8 66,118.4Interest 11,678.7 12,262.8 12,875.5 EBT 44,321.3 45,743.0 53,242.9Taxes (40%) 17,728.4 18,297.2 21,297.2 NI 26,592.7 27,445.8 31,945.7Dividends 21,200.0 22,300.0 23,400.0Add. RE 5,392.7 5,145.8 8,545.7

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NOPAT (Net Operating Profit After Taxes)االرباح التشغيلية بعد الضريبة

NOPAT is the amount of after-tax profit generated by operations.

NOPAT is the amount of net income, or earnings, that a company with no debt or interest-income would have.

NOPAT = (Operating profit) (1-T)

= EBIT (1-T)

24

Calculating NOPATاالرباح التشغيلية بعد الضريبةحساب

NOPAT = (Operating profit) (1-T)

= EBIT (1-T)

NOPAT03 = 66.1184 (1-0.4) = 39.67104

million.

25

Calculating Operating Capitalحساب رأس المال التشغيلي

Operating capital (also called total operating capital, or just capital) is the amount of assets required to support the company’s operations, less the liabilities that arise from those operations. The short-term component is net operating

working capital (NOWC). The long-term component is factories, land,

equipment.

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Net Operating Working Capitalحساب صافي رأس المال العامل

NOWC = Operating current assets

– Operating current liabilities

This is the net amount tied up in the “things”

needed to run the company on a day-to-day

basis.

27

Net Operating Working Capitalحساب صافي رأس المال العامل

NOWC = Operating CA – Operating CL

NOWC03 = $176.4 – $66.15

= $110.25 million

28

Operating Capitalحساب رأس المال التشغيلي

Operating capital = Net operating working capital (NOWC)

plus Long-term capital, such as factories, land,

equipment.

29

Operating Capitalحساب رأس المال التشغيلي

Operating Capital = NOWC + LT Op. Capital

Capital03 = $110.25 + $220.50

= $330.75 million

This means in 2003 Simple Co. had $330.75

million tied up in capital needed to support its

operations. Investors supplied this money. It

isn’t available for distribution.

30

Investment in Operating Capitalاالستثمار في رأس المال التشغيلي

Operating capital in 2002 was $315.0423 million

Operating capital in 2003 was $330.75 million

Simple Co. had to make a net investment of $330.75 – $315.0423 = $15.7077 million in operating capital in 2003.

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Calculating FCFحساب التدفقات النقدية الحرة

FCF = NOPAT – Investment in operating capital

FCF03 = $39.67104 – (330.75 – 315.0423)

= $39.67104 – $15.7077

= $23.96334 million

32

Uses of FCFاستخدامات التدفقات النقدية

الحرة

There are five ways for a company to use FCF

1. Pay interest on debt.

2. Pay back principal on debt.

3. Pay dividends.

4. Buy back stock.

5. Buy nonoperating assets (e.g., marketable securities, investments in other companies, etc.)

33

Reinvestmen

اعادة االستثمار

Free Cash Flow

التدفقات النقدية الحرة

34

How Did Simple Co. use its FCF?كيف استخدمت الشركة البسيطة تدفقاتها

النقدية الحرة

Paid dividends: $23.4 million Paid after-tax interest of: $12,875.5 (1-0.4) =

$7.7253 million For a total of $31.1253 million! This is $7.162

million more than the $23.9 million FCF available! Where did it come from?

Simple Co. increased its borrowing by $150.223 – $143.061) = $7.162 million to make up the difference.

35

Corporate Valuationتسعير الشركة

Forecast financial statements and use them to project FCF.

Discount the FCFs at the WACC

This gives the value of operations

36

Value of Operations:حساب قيمة اعمال الشركة

1 1tt

tOp

WACC

FCFV

Of course, this requires projecting free cash flows out forever.

37

Constant growthنمو ثابت

If free cash flows are expected to grow at a constant rate of 5%, then this is easy:

2003 2004 2005 2006 2007 2008

FCF 23.963 25.161 26.419 27.740 29.127 30.584

There is an easy formula for the present value of free cash flows that grow forever at a constant rate…

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Constant Growth Formulaنموذج التسعير بفرض النم الثابت

The summation can be replaced by a single formula:

gWACC

)g1(FCF

gWACC

FCFV

0

1Op

39

The value of operationsحساب قيمة اعمال الشركة

million 225.501$

05.01002.0

)05.01(96334.23$

)1(0

Op

Op

V

gWACC

gFCFV

40

Value of Equityقيمة حقوق المالكين

Sources of Corporate Value Value of operations = $501.225 million Value of non-operating assets = $0 (in this case)

Claims on Corporate Value Value of Debt = $150.223 million

Value of Equity = ? Value of Equity = $501.225 - $150.223 =

$351.002 million, or just $351 million.

41

Value of Equityقيمة حقوق المالكين

Price per share

= Equity / # of shares

= $351 million / 10 million shares

= $35.10 per share

42

A picture of the breakdown of Simple Co.’s value

رسم توضيحي لقيمة الشركة من دين وملكية

Equity

Debt

43

Return on Invested Capital (ROIC)العائد على رأس المال المستثمر

ROIC can be used to evaluate Simple Co.’s performance:

ROIC = NOPAT / Total operating capital in place at the beginning of the year

44

Return on Invested Capital (ROIC)العائد على رأس المال المستثمر

ROIC03 = NOPAT03 / Capital02

ROIC03 = 39.67104 / 315.0423 = 12.6%.

This is a good ROIC because it is greater than the return that investors require, the WACC, which is 10.02%. So Simple Co. added value during 2003.

45

Economic Value Added (EVATM) (also called Economic Profit)

القيمة االقتصادية المضافة او الربح االقتصادي

EVA is another key measure of operating performance.

EVA is trademarked by Stern Stewart, Inc. It measures the amount of profit the

company earned, over and above the amount of profit that investors required.

EVA = NOPATt – WACC(Capitalt-1)

46

Calculating EVAالقيمة االقتصادية المضافةحساب

EVA = NOPAT- (WACC)(Begng. Capital)

EVA03 = NOPAT03 – (0.1002)(Capital02)

EVA03 = $39.67104 – (0.1002)(315.0423)

= $39.67104 – $31.56742

= $8.1038 million

(More…)

47

Economic profit…الربح االقتصادي

This shows that in 2003 Simple Co. earned about $8 million more than its investors required.

Another way to calculate EP is

EVAt = (ROIC – WACC)Capitalt-1

= (0.125923 – 0.1002)$315.0423

= $8.1038 million

48

Intuition behind EVAالربح االقتصاديمعنى

If the ROIC – WACC spread is positive, then the firm is generating more than enough “profit,” and is increasing value. But, if the ROIC – WACC spread is negative, then the firm is destroying value, in the sense that investors would be better off taking their money and investing it elsewhere.

49

Valuing a basic companyتسعير شركة اكثر تفصيال

Here we will price a company with more detailed operations and financial statements line items.

The purpose is to advance our ability to value real life companies one step at the time.

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Basic Co.'s Balance Sheet: Assetsاالصول - المالي المركز قائمة

2001 2002 2003 Cash 37.30 41.40 45.12 Inventory 522.14 579.58 631.74 Accounts receivable 932.40 1,034.96 1,128.11

Total current assets 1,491.84 1,655.94 1,804.98 Gross PPE 2,619.28 3,031.40 3,443.32 Accumulated depreciation 754.48 961.47 1,187.09

Net PPE 1,864.80 2,069.93 2,256.23

Total assets 3,356.64 3,725.87 4,061.20

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Basic Co.'s Balance Sheet: Liabilitiesقائمة المركز المالي - الخصوم

Accounts payable 372.96 413.99 451.24 Accrued expenses 186.48 206.99 225.62 Short-term debt 183.19 285.90 381.71

Total current liabilities 742.63 906.88 1,058.57 Long-term debt 1,000.00 1,000.00 1,000.00

Total liabilities 1,742.63 1,906.88 2,058.57 Common stock 500.00 600.00 600.00 Retained earnings 1,114.01 1,218.99 1,402.63

Total common equity 1,614.01 1,818.99 2,002.62

Total liabilities and equity 3,356.64 3,725.87 4,061.20

2001 2002 2003

52

Basic Co.'s Income Statementقائمة الدخل

2001 2002 2003 Sales 3,729.60 4,139.86 4,512.44 Costs of Goods Sold 2,312.35 2,566.71 2,797.71 Sales, General and Administrative 745.92 827.97 902.49 Depreciation 186.48 206.99 225.62

Operating Profit 484.85 538.18 586.62 Interest expense 88.05 96.49 105.73

Earnings Before Taxes 396.80 441.70 480.89 Taxes 158.72 176.68 192.36

Net Income 238.08 265.02 288.53

53

Basic Co.’s free cash flowالتدفق النقدي الحر

Free cash flow is cash potentially available for distribution to stockholders and creditors: Dividends and stock repurchases Interest and principal payments

54

Free cash flow calculationحساب التدفق النقدي الحر

FCF calculated as NOPAT – investment in operating capital

For 2003:

NOPAT2003 = Operating profit – taxes on o.p.

=$586.62(1 – 0.40) = $351.97

55


Net operating working capital: NOWC2003 = (cash + inventory + AR) – (AP +

Accrued expenses) = $1,128.11 Total operating capital in 2003:

= NOWC + net long-term operating capital (which is PPE for Basic Co.)

= $1,128.11 + $2,256.23 = $3,384.34 TOC in 2002 is $3,104.89

56


FCF = NOPAT – net investment in operating capital = $351.97 – ($3,384.34 - $3,104.89) = $72.52 million

57


2001 2002 2003 Operating profit 484.85 538.19 586.62 Tax on operating profit 193.94 215.28 234.65 NOPAT 290.91 322.91 351.97 Operating current assets 1,491.84 1,655.94 1,804.97 Operating current liabilities 559.44 620.98 676.86 NOWC 932.40 1,034.96 1,128.11

Total operating capital 2,797.20 3,104.89 3,384.34 Investment in total net operating capital 307.69 279.45 FCF 15.22 72.52

58

Uses of FCFاستخدامات التدفق النقدي الحر

How was this $72.52 million used? Paid $106 million to debtholders in interest—

but after-tax amount was only $64 million because it is deductible.

Paid $105 million in dividends. For a total of $169 million, which is quite a bit

more than its FCF of $73 million. It borrowed the rest, for a total new borrowing of $169 - $73 = $96 million.

59

Basic Co.’s operating performanceاالداء التشغيلي للشركة

ROIC = NOPATt/Capitalt-1

ROIC2002 = NOPAT2002/Capital2001

= $322.91/$2,797.2 = 11.5% ROIC2003 = NOPAT2003/Capital2002

= $351.97/$3,104.89 = 11.3%

60

Basic Co.’s operating performanceاالداء التشغيلي للشركة

If ROIC is greater than the cost of capital (WACC) then Basic Co. is adding value. Since WACC is 10%, ROIC shows that Basic Co. is earning more than its investors require.

61

Projectionsالتنبؤ

Next chapter will have the nuts and bolts of projections. For now, assume that your financial analyst has already made the projections on the following page.

62

Income statement projectionsالتنبؤ بقائمة الدخل للسنوات القادمة

Income Statements Actual Projected Projected Projected Projected 2003 2004 2005 2006 2007 Sales 4,512.44 4,873.44 5,165.84 5,475.80 5,804.34 Costs of Goods Sold 2,797.71 3,021.53 3,202.82 3,394.99 3,598.69 Sales, General and Administrative 902.49 974.69 1,033.17 1,095.16 1,160.87 Depreciation 225.62 243.67 258.29 273.80 290.22

Operating Profit 586.62 633.55 671.56 711.85 754.56 Interest on original debt 80.00 80.00 80.00 80.00 80.00

Interest Expense on new debt 25.73 34.35 42.84 50.18 57.95 Interest expense 105.73 114.35 122.84 130.18 137.95

Earnings Before Taxes 480.89 519.19 548.72 581.67 616.61 Taxes 192.35 207.68 219.49 232.67 246.65

Net Income 288.53 311.52 329.23 349.00 369.97 Dividends 104.89 135.10 191.43 202.90 215.05

Additions to retained earnings 183.64 176.41 137.80 146.11 154.91

63

Balance sheet projectionsالتنبؤ بقائمة المركز المالي للسنوات

القادمةBalance Sheets Actual Projected Projected Projected Projected

2003 2004 2005 2006 2007

Cash 45.12 48.73 51.66 54.76 58.04

Inventory 631.74 6 82.28 723.22 766.61 812.61

Accounts receivable 1,128.11 1,218.36 1,291.46 1,368.95 1,451.09

Total current assets 1,804.98 1,949.38 2,066.34 2,190.32 2,321.74

Gross PPE 3,443.32 3,867.49 4,271.98 4,700.75 5,155.24

Accumulated depreciation 1,187.09 1,430 .77 1,689.06 1,962.85 2,253.07

Net PPE 2,256.22 2,436.72 2,582.92 2,737.90 2,902.17

Total assets 4,061.20 4,386.09 4,649.26 4,928.22 5,223.91

64

Balance sheet projectionsالتنبؤ بقائمة المركز المالي للسنوات

القادمةLiabilities Actual Projected Projected Projected Projected

2003 2004 2005 2006 2007

Accounts payable 451.24 487.34 516.58 547.58 580.43

Accrued expenses 225.62 243.67 258.29 273.79 290.22

Short- term debt 381.71 476.04 557.55 643.90 735.40

Total current liabilities 1,058.57 1,207.05 1,332.42 1,465.27 1,606.05

Long- term debt 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00

Total liabilities 2,058.57 2,207.05 2,332.42 2,465.27 2,606.05

Commo n stock 600.00 600.00 600.00 600.00 600.00

Retained earnings 1,402.63 1,579.04 1,716.84 1,862.95 2,017.86

Total common equity 2,002.63 2,179.04 2,316.84 2,462.95 2,617.86

Total liabilities and equity 4,061.20 4,386.09 4,649.26 4,928.22 5,223.91

65

FCF Projectionsالتنبؤ بالتدفق النقدي الحر

Actual Projected Projected Projected Projected

2003 2004 2005 2006 2007

Operating profit 586.62 633.55 671.56 711.85 754.56

Tax on operating profit 234.65 253.42 268.62 284.74 301.83

NOPATa 351.97 380.13 402.94 427.11 452.74

Operating current assets 1,804.97 1,949.37 2,066.34 2,190.32 2,321.74

Operating current liabilities 676.86 731.01 774.87 821.37 870.65

NOWCb 1,128.11 1,218.36 1,291.47 1,368.95 1,451.09

Total operating capital c 3,384.34 3,655.08 3,874.39 4,106.85 4,353.26

Investment in total net operating capitald 279.45 270.74 219.31 232.46 246.41

FCFe 72.52 109.39 183.63 194.65 206.33

66

ROIC Projectionsالتنبؤ بالعائد على رأس المال

المستثمر

Long term projected growth is 6%

Actual

2003 Projected

2004 Projected

2005 Projected

2006 Projected

2007 ROIC = (NOPAT/Beginning capital) 11.3% 11.2% 11.0% 11.0% 11.0% Growth in Sales 9.0% 8.0% 6.0% 6.0% 6.0% Growth in NOPAT 9.0% 8.0% 6.0% 6.0% 6.0% Growth in total net op. cap. 9.0% 8.0% 6.0% 6.0% 6.0% Growth in FCF 376.6% 50.8% 67.9% 6.0% 6.0%

Growth in dividends

-34.5%

28.8%

41.7%

6.0%

6.0%

67

Horizon Valueقيمة اعمال الشركة عند بدء

النمو الثابت

.gWACC

)g1(FCF

gWACC

FCFHV N1N

N

.million75.467,5$

06.0100.0

)06.01(33.206$

gWACC

)g1(FCFHV 2007

2007

68

Value of operationsالقيمة الحالية ألعمال الشركة

.million92.272,4$

)10.01(

75.467,5$

)10.01(

33.206$

)10.01(

65.194$

)10.01(

63.183$

)10.01(

38.109$V

44

32Op

69

Value of equityقيمة حقوق الملكية

Vequity = VOPS + non-operating assets – debt = $4,272.92 + 0 – debtDebt: $381.71 million short term + 1 million long-

term bonds at $900.15 each = 381.71 + 900.15 = $1,281.86 million

Vequity = $4,272.92 - 1,281.86 = $2,991.06 million

70

10 million shares outstanding Value per share = $29.91

Per share equityسعر السهم

71

Alternate valuation methodطرق اخرى للتسعير

Method of multiples Not as reliable as the free cash flow model

we’ve developed But it is frequently used by less-

sophisticated analysts

72

Why project financial statements?

أهداف التنبؤ بالقوائم المالية

Forces you to articulate your assumptions Helps you understand your firm’s value

drivers Requires you to verify that your

assumptions are economically reasonable Identifies external funding needed Provides data needed to project FCF and

perform a valuation

73

What are the characteristics of a good forecast?

ما هي مواصفات التنبؤ الجيد؟

Economic plausibility The statements must reflect how the

firm might realistically operate in the future.

Accounting consistency Do the financial statements balance? Do they “articulate?” Are they a good model of the firm’s

finances?

74

Projecting partial financial statements

التنبؤ بقوائم مالية جزئية – ما نحتاجه فقط لهذه المرحلة

Income statement Forecast methodNet sales Forecast growthCost of goods sold Percent of salesSGA Percent of salesDepreciation Percent net PPEOperating profit Calculated

75

Projecting partial financial statements

التنبؤ بقوائم مالية جزئية – ما نحتاجه فقط لهذه المرحلة

Balance Sheet Forecast method

Cash Percent of salesInventory Percent of salesAccounts receivable Percent of salesNet PPE Percent of salesAccounts payable Percent of salesAccrued expenses Percent of sales

76

Developed Products, Inc.قائمة الدخل لثالث سنوات سابقة

للشركة

Developed Products, Inc. Actual Actual Act ual Income Statement 2001 2002 2003

Net Sales 840 944 1,000 Cost Of Goods Sold 520 625 640

Selling, general & administrative 200 205 215 Depreciation 41 42 45

Operating profit 79 72 100 Interest income 0 1 0 Interest expense 9 9 10

Earnings befor e taxes 70 64 90 Taxes 28 25 36

Net income 42 39 54 Dividends 12 11 16 Additions to RE 30 28 38

77

Developed Products, Inc.قائمة المركز المالي لثالث سنوات سابقة

للشركة

Actual Actual Actual Balance sheet 2001 2002 2003 Cash 42 47 50 Short-term investments 10 15 25 Inventory 75 85 100 Accounts receivable 65 70 75

Total current assets 192 217 250 Net PP&E 275 280 300

Total assets 467 497 550

78

Developed Products, Inc.قائمة المركز المالي لثالث سنوات سابقة

للشركة Actual Actual Actual Balance sheet 2001 2002 2003 Accounts payable 80 70 75 Accrued expenses 8 10 10 Short-term debt 50 30 25

Total current liabilities 138 110 110 Long-term debt 54 84 99

Total liabilities 192 194 209

Common stock 125 125 125 Retained earnings 150 178 216

Total common equity 275 303 341 Total liabilities and equity 467 497 550

79

Choosing inputs for the model

مدخالت مطلوبة للتنبؤ

Projecting the sales growth rate Projecting operating profit Projecting operating capital Projecting taxes

80

Projections and Free Cash Flowالتنبؤات للعام القادم

Ratios to calculate operating profit2001 2002 2003 Avg. Proj.

Sales growth rate na 12.4% 5.9% 9.2% 11.0%

COGS / Sales 61.9% 66.2% 64.0% 64.0% 62.5%

SGA / Sales 23.8% 21.7% 21.5% 22.3% 22.5%

Depreciation / Net PPE 14.9% 15.0% 15.0% 15.0% 15.0%

81


Ratios to calculate operating capital

2001 2002 2003 Avg. Proj.

Cash / Sales 5.0% 5.0% 5.0% 5.0% 3.0%Inventory/ Sales 8.9% 9.0% 10.0% 9.3% 11.0%Accts. Rec. / Sales 7.7% 7.4% 7.5% 7.6% 7.6%Net PPE / Sales 32.7% 29.7% 30.0% 30.8% 34.0%Accts. Pay./ Sales 9.5% 7.4% 7.5% 8.1% 8.1%Accruals / Sales 0.9% 1.1% 1.0% 1.0% 1.0%

82


Ratios to calculate operating taxes

2001 2002 2003 Avg. Proj.Tax Rate (Taxes/EBT) 40.0% 39.1% 40.0% 39.7% 39.7%

83

Free Cash Flow Calculationsحسابات التدفق النقدي الحر التاريخية والمتنبأ

بها للعام القادم

Developed Products, Inc. Actual Actual Actual ProjectedIncome Statement 2001 2002 2003 2004

Net Sales 840.0 944.0 1000.0 1110.0CGS 520.0 625.0 640.0 693.8Selling, general & administrative 200.0 205.0 215.0 249.8Depreciation 41.0 42.0 45.0 56.6

Operating profit 79.0 72.0 100.0 109.9

84

Free Cash Flow Calculationsحسابات التدفق النقدي الحر التاريخية والمتنبأ

بها للعام القادم

Actual Actual Actual Proj.Balance sheet 2001 2002 2003 2004

Cash 42.0 47.0 50.0 33.3Inventory 75.0 85.0 100.0 122.1Accts. receivable 65.0 70.0 75.0 84.4Net PP&E 275.0 280.0 300.0 377.4Accts. payable 80.0 70.0 75.0 89.9Accrued expenses 8.0 10.0 10.0 11.1

85

Actual Actual Actual Proj.2001 2002 2003 2004

Operating Income 79.0 72.0 100.0 109.9 Tax on Operating Income (40%) 31.6 28.1 40.0 43.6 NOPAT 47.4 43.9 60.0 66.3 Net Operating WC 94.0 122.0 140.0 138.8 Net Operating Long Term Assets 275.0 280.0 300.0 377.4 Total Net Operating Assets 369.0 402.0 440.0 516.2Investment in net operating assets na 33.0 38.0 76.2 Free Cash Flow na 10.4 22.0 -9.9 ROIC na 11.89% 14.93% 15.06%

86

Balancing the Balance Sheetموازنة قائمة المركز المالي

The “plug approach” Based on the assumed financial

policies, there are only two items left to make the balance sheet balance.

Short-term investments Short-term debt

87

Balancing the Balance Sheet

موازنة قائمة المركز المالي

Suppose projected total assets (ignoring short-term investments) are greater than projected total liabilities and equity (ignoring short-term debt).

Then there are not enough sources of funding to pay for the planned asset purchases.

88


موازنة قائمة المركز المالي First liquidate any short-term

investments; Then borrow using short-term debt to

cover any remaining shortfall.

89

Plugتعبئة الباقي

In this case, short-term debt is used to “plug” the shortfall in liabilities.

90


موازنة قائمة المركز المالي

Suppose projected total assets (ignoring short-term investments) are less than projected total liabilities and equity (ignoring short-term debt).

Then the firm has more financing than it needs to implement its operating plan.

91


موازنة قائمة المركز المالي First pay off any short-term debt; Then put any remaining funds into

short-term investments.

92


In this case, short-term investments (also called marketable securities) are used to plug the shortfall in assets.

93

Interest Income and Expenseدخل ومصروف الفائدة

Interest expense depends on debt, but debt changes throughout the year. Base it on beginning of year debt in this

chapter. Chapter 8 explains how to base interest on the average level of debt during the year.

Interest income depends on short-term investments, but this changes throughout the year too. In this chapter, base it on beginning of year short-term investments.

94

Explicit Non-operating Assumptionsفرضيات واضحة

Interest rates: 3% on short-term investments 9% on all debt

Dividends were $16 million in 2003. They will grow by 10% to $17.6 million in 2004.

95

Explicit Non-operating Assumptionsفرضيات واضحة

Long-term debt will decline from 18.9% of operating assets to 15% of operating assets.

Projected operating assets = cash + accounts receivable + inventories + net PPE = $33.3 + $84.4 + $122.1 + $377.4 = $617.2 million.

Projected long-term debt = 0.15($617.2) = $92.6 million.

96

Assumptions so far.…الفرضيات

2001 2002 2003 Avg. Proj.

Ratios to calculate operating profit Sales growth rate na 12.4% 5.9% 9.2% 11.0% COGS / Sales 61.9% 66.2% 64.0% 64.0% 62.5% SGA / Sales 23.8% 21.7% 21.5% 22.3% 22.5% Depreciation / Net PPE 14.9% 15.0% 15.0% 15.0% 15.0%

Ratios to calculate operating capital Cash / Sales 5.0% 5.0% 5.0% 5.0% 3.0% Inventory/ Sales 8.9% 9.0% 10.0% 9.3% 11.0% Accts. Rec. / Sales 7.7% 7.4% 7.5% 7.6% 7.6% Net PPE / Sales 32.7% 29.7% 30.0% 30.8% 34.0% Accts. Pay./ Sales 9.5% 7.4% 7.5% 8.1% 8.1% Accruals / Sales 1.0% 1.1% 1.0% 1.0% 1.0%

97

Assumptions so far.…الفرضيات

Ratios to calculate operating taxes Tax Rate (Taxes/EBT) 40.0% 39.1% 40.0% 39.7% 39.7%

Dividend and debt ratios Dividend policy: growth rate na -8.3% 45.5% 18.6% 10.0% Long-term Debt / operating assets 11.8% 17.4% 18.9% 16.0% 15.0%

Interest Rates Interest rate on short-term invest. na 10.0% 0.0% 5.0% 3.0% Interest rate on debt na 8.7% 8.8% 8.7% 9.0%

2001 2002 2003 Avg. Proj.

98

Advanced Products, Inc. Actual Actual Actual Proj. Income Statement 2001 2002 2003 2004 Net Sales 840.0 944.0 1,000.0 1,110.0 Cost Of Goods Sold 520.0 625.0 640.0 693.8 Selling, general & administrative 200.0 205.0 215.0 249.8 Depreciation 41.0 42.0 45.0 56.6

Operating profit 79.0 72.0 100.0 109.9 Interest income - 1.0 - 0.8 Interest expense 9.0 9.0 10.0 11.2

Earnings before taxes 70.0 64.0 90.0 99.5 Taxes 28.0 25.0 36.0 39.5

Net income 42.0 39.0 54.0 60.0 Dividends 12.0 11.0 16.0 17.6 Additions to RE 30.0 28.0 38.0 42.4

Completing the Income Statementتتمة قائمة الدخل

99

Actual Actual Actual Proj. Balance sheet 2001 2002 2003 2004 Cash 42.0 47.0 50.0 33.3 Short term investments 10.0 15.0 25.0 - Inventory 75.0 85.0 100.0 122.1

Accounts receivable 65.0 70.0 75.0 84.4 Total current assets 192.0 217.0 250.0 239.8

Net PP&E 275.0 280.0 300.0 377.4 Total assets 467.0 497.0 550.0 617.2

Preliminary Balance Sheetقائمة مركز مالي اولية

100

2001 2002 2003 2004 Accounts payable 80.0 70.0 75.0 89.9 Accrued expenses 8.0 10.0 10.0 11.1 Short-term debt 50.0 30.0 25.0 - Total current liabilities 138.0 110.0 110.0 101.0

Long-term debt 54.0 84.0 99.0 92.6 Total liabilities 192.0 194.0 209.0 193.6

Common stock 125.0 125.0 125.0 125.0 Retained earnings 150.0 178.0 216.0 258.4

Total common equity 275.0 303.0 341.0 383.4 Total liabilities and

equity 467.0 497.0 550.0 577.0

Preliminary Balance Sheetقائمة مركز مالي اولية

101

Balance Sheets Don't Balance

قائمة المركز المالي غير موازنة

Total assets (excluding short-term investments) = $617.2

Total liabilities and equity (excluding short-term debt) = $577.0

Advanced Products’ financing plan is $40.2 million short.

102


Add short-term debt = $40.2 million.

Don’t have any short-term investments.

103

Final Projectionsالتنبؤ مكتمال Actual Actual Actual Proj.

Balance sheet 2001 2002 2003 2004 Cash 42.0 47.0 50.0 33.3 Short term investments 10.0 15.0 25.0 - Inventory 75.0 85.0 100.0 122.1 Accounts receivable 65.0 70.0 75.0 84.4

Total current assets 192.0 217.0 250.0 239.8 Net PP&E 275.0 280.0 300.0 377.4

Total assets 467.0 497.0 550.0 617.2

104

2001 2002 2003 2004

Accounts payable 80.0 70.0 75.0 89.9 Accrued expenses 8.0 10.0 10.0 11.1 Short-term debt 50.0 30.0 25.0 40.2

Total current liabilities 138.0 110.0 110.0 141.2 Long-term debt 54.0 84.0 99.0 92.6

Total liabilities 192.0 194.0 209.0 233.8

Common stock 125.0 125.0 125.0 125.0 Retained earnings 150.0 178.0 216.0 258.4

Total common equity 275.0 303.0 341.0 383.4 Total liabilities and

equity

467.0 497.0 550.0 617.2

Final Projectionsالتنبؤ مكتمال

105

التنبؤ لعدة سنوات والتسعير

Multiyear Projections and Valuation

التنبؤ لعدة سنوات والتسعير

106

Short-term, Long–termتنبؤات قصيرة، متوسطة وطويلة

االمد There are three types of time periods

in these projections: The short-term, in which there is plenty of

specific information on which to base projections

The steady state, in which the firm is assumed to be at constant growth and some form of competitive equilibrium. It starts with the last year of projections.

The long-term is between the short term and the steady state--general firm and industry information is used to base projections.

107

Ratios - projectedنسب نمو المبيعات والنسب االخر

ومعدالتها المتنبئة

Projected2004 2005 2006 2007 2008 2009after

Ratios to calculate operating profitSales growth rate 11.0% 8.0% 7.0% 7.0% 6.0% 6.0% 6.0%COGS / Sales 62.5% 62.5% 62.5% 63.0% 64.0% 64.0% 64.0%SGA / Sales 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% 22.5%

Depreciation / Net PPE 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%

108

Projected Ratiosاالصول والخصوم كنسبة من المبيعات

ومعدالتها المتنبئة

Projected2004 2005 2006 2007 2008 2009 after

Cash / Sales 3.0% 3.0% 3.0% 2.0% 2.0% 2.0% 2.0%Inventory/ Sales 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%Accts. Rec. / Sales 7.6% 7.6% 7.6% 7.6% 7.6% 7.6% 7.6%Net PPE / Sales 34.0% 31.5% 30.8% 30.8% 30.8% 30.8% 30.8%Accts. Pay./ Sales 8.1% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1%Accruals / Sales 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

109

Projecting operating taxesالتنبؤ بمعدل الضريبة

Taxes have averaged 39.7% of pre-tax income, and are projected to remain there.

110

Dividend growth rateالتنبؤ بمعدل نمو توزيعات االرباح

Advanced Products is stabilizing its historically erratic dividend policy. Growth for 2004 through 2007 is set at 10%. 2008 growth is projected to be 8%, and dividend growth is projected to be 6% thereafter.

111

Target debt ratio and interestالتنبؤ بالديون وتكاليفها

Historically, 16% of operating capital has been financed with long-term debt. This is expected to be reduced to 15%.

Short-term and long-term debt is expected to cost 9%, and the yield on short-term investments is expected to be 3%.

112

Balancingموازنة قائمة المركز المالي المتنبئة

Projected assets too big? Short-term debt is the plug—after driving short-term investments to zero.

Projected liabilities too big? Short-term investments are the plug—after driving short-term debt to zero.

113

Historical Income Statementقائمة الدخل للسنين السابقة Actual Actual Actual

2001 2002 2003 Net Sales 840.0 944.0 1,000.0 Cost Of Goods Sold 520.0 625.0 640.0 Selling, general & administrative 200.0 205.0 215.0 Depreciation 41.0 42.0 45.0

Operating profit 79.0 72.0 100.0 Interest income 0.0 1.0 0.0

Interest expense 9.0 9.0 10.0 Earnings before taxes 70.0 64.0 90.0

Taxes 28.0 25.0 36.0 Net income 42.0 39.0 54.0

Dividends 12.0 11.0 16.0 Additions to RE 30.0 28.0 38.0

114

Projected Income Statement قائمة الدخل المتنبئة

ProjectedIncome Statement 2004 2005 2006 2007 2008 2009Net Sales 1,110.0 1,198.8 1,282.7 1,372.5 1,454.9 1,542.1 Cost Of Goods Sold 693.8 749.3 801.7 864.7 931.1 987.0 SG&A 249.8 269.7 288.6 308.8 327.3 347.0 Depreciation 56.6 56.6 59.3 63.4 67.2 71.2

Operating profit 109.9 123.2 133.1 135.6 129.2 136.9 Interest income 0.8 - - 0.9 1.9 2.5 Interest expense 11.2 11.9 8.7 9.1 9.5 10.1 Earnings before taxes 99.5 111.2 124.5 127.4 121.6 129.3 Taxes 39.5 44.2 49.4 50.6 48.3 51.3

Net income 60.0 67.1 75.1 76.8 73.3 78.0 Dividends 17.6 19.4 21.3 23.4 25.3 26.8 Additions to RE 42.4 47.7 53.8 53.4 48.0 51.2

115

Historical Assetsاالصول لسنين سابقة

Actual Actual Actual 2001 2002 2003 Cash 42.0 47.0 50.0 Short- term investments 10.0 15.0 25.0 Inventory 75.0 85.0 100.0

Accounts receivable 65.0 70.0 75.0 Total current assets 192.0 217.0 250.0

Net PP&E 275.0 280.0 300.0 Total assets 467.0 497.0 550.0

116

Projected Assetsاالصول المتنبئة

2004 2005 2006 2007 2008 2009Cash 33.3 36.0 38.5 27.5 29.1 30.8 Short term investments - - 30.3 63.5 83.1 104.0 Inventory 122.1 131.9 141.1 151.0 160.0 169.6 Accounts receivable 84.4 91.1 97.5 104.3 110.6 117.2

Total current assets 239.8 258.9 307.3 346.3 382.8 421.7 Net PP&E 377.4 377.6 395.1 422.7 448.1 475.0

Total assets 617.2 636.6 702.4 769.0 830.8 896.7

117

Historical liabilitiesالخصوم وحقوق الملكية لسنين

سابقة Actual Actual Actual 2001 2002 2003

Accounts payable 80.0 70.0 75.0 Accrued expenses 8.0 10.0 10.0 Short-term debt 50.0 30.0 25.0

Total current liabilities 138.0 110.0 110.0 Long-term debt 54.0 84.0 99.0

Total liabilities 192.0 194.0 209.0 Common stock 125.0 125.0 125.0 Retained earnings 150.0 178.0 216.0

Total common equity 275.0 303.0 341.0 Total liabilities and equity 467.0 497.0 550.0

118

Projected Liabilitiesالخصوم وحقوق الملكية المتنبئة

Accounts payable 89.9 97.1 103.9 111.2 117.8 124.9 Accrued expenses 11.1 12.0 12.8 13.7 14.5 15.4 Short-term debt 40.2 0.9 - - - -

Total current liabilities 141.2 110.0 116.7 124.9 132.4 140.3 Long-term debt 92.6 95.5 100.8 105.8 112.2 118.9

Total liabilities 233.8 205.5 217.5 230.7 244.6 259.2 Common stock 125.0 125.0 125.0 125.0 125.0 125.0 Retained earnings 258.4 306.1 359.9 413.3 461.3 512.5

Total common equity 383.4 431.1 484.9 538.3 586.3 637.5 Total liabilities and

equity 617.2 636.6 702.4 769.0 830.8 896.7

119

Free Cash Flowحساب التدفقات النقدية لسنين

سابقةActual Actual Actual

2001 2002 2003Operating Income 79.0 72.0 100.0Tax on Operating Income 31.6 28.1 40.0NOPAT 47.4 43.9 60.0Net Operating WC 94.0 122.0 140.0Net Operating Long Term Assets 275.0 280.0 300.0Total Net Operating Capital 369.0 402.0 440.0Investment in net operating capital 33.0 38.0Free Cash Flow 10.88 22.00growth in FCF 102.3%ROIC 11.9% 14.9%

120

Free Cash Flowحساب التدفقات النقدية لسنين التنبؤ

Projected2004 2005 2006 2007 2008 2009

Operating Income 109.9 123.2 133.1 135.6 129.2 136.9Tax on Operating Income

43.6 48.9 52.9 53.8 51.3 54.4

NOPAT 66.3 74.3 80.3 81.8 77.9 82.6Net Operating WC 138.8 149.9 160.3 157.8 167.3 177.3Net Operating Long Term Assets 377.4 377.6 395.1 422.7 448.1 475.0Total Net Operating Capital 516.2 527.5 555.4 580.6 615.4 652.3Investment in net operating capital 76.2 11.3 27.9 25.2 34.8 36.9Free Cash Flow -9.9 63.0 52.3 56.6 43.1 45.7growth in FCF -144.9% na -16.9% 8.2% -23.9% 6.0%ROIC 15.1% 14.4% 15.2% 14.7% 13.4% 13.4%

121

Cost of Equityتكلفة حقوق الملكية

Using the capital asset pricing model (CAPM): Advanced Products’s beta is 1.4. The risk-free rate is 6%. The market risk premium is 5%.

rS = rRF + beta (RPM) = 6% + 1.4 (5.0%) = 13%

122

Cost of Capital…تكلفة الديون وتكلفة رأس المال

Target debt is 19.8%, target equity is 80.2%

WACC = (1-T)rDwD + rSwS

= (1 - 0.397)(9.0%)(0.198) + (13%)(0.802)

= 11.5%

123

Valuationالتسعير

80.879$06.0115.0

)06.1(65.45

gWACC

)g1(FCFHV 2009

2009

2004 2005 2006 2007 2008 2009 Horizon Value 879.80 Free Cash Flow (9.89) 62.95 52.34 56.61 43.07 45.65 FCF + Horizon Value 925.45

(9.89) 62.95 52.34 56.61 43.07

124


Present value at the WACC of 11.5% is $622.79 million.

This is as of the end of 2003 Debt at end of 2003 is $124

million, short-term investments are $25 million

125


Equity = $622.79 + $25 – $124 = $523.79 million.

There are 10 million shares, so per share is $52.38 per share.

Compared to the existing market price of $40.12, this Advanced Products appears to be a good investment at this time.

126

مسائل حول التنبؤ بالقوائم المالية المستقبلية للتسعير والتنبؤ باالحتياجات المالية

اختياري اذا سمح الوقت

Technical Issues in Projecting Financial Statements and

Forecasting Financing Needs for Valuation

127

Extensionsسنتوسع في معالجة بعض القضايا لزيادة

دقة التنبؤات ودقة التسعير للوصول للسعر الحقيقي لالسهم

This part describes extensions to: ثالث قضايا هامة

1. Projections based on the proportional percent of sales method

2. Alternative financing policies3. Calculations of interest expense and

interest income

128

Extensions to Proportional Percent of Sales Method

التنبؤ والتسعير باستخدام طرق اخرى غير معدل النمو للمبيعات

Linear with intercept Non-linear Lumpy assets

129

Alternative Financing Policiesطرق تمويلية اخرى اكثر تعقيدا وتطورت

من الطرق السابقة

Dividend policies Constant growth Fixed payout Residual

Equity issuance and repurchase Debt as fixed percent of market

value

130

Interest Income and Expenseمعالجة اكثر دقة لدخل ومصاريف

فوائد الديون

Based on average levels of debt and short-term investments

131

When Projections Aren’t a Proportional Percentage of Sales

التنبؤ والتسعير بطرق غير طريقة النسبة الثابتة من المبيعات

Linear with intercept SGA = fixed expenses + sales (variable costs % of

sales) = a + b(sales)

Income Statement 1999 2000 2001 2002 2003Net Sales 770 800 840 944 1000Selling, general & administrative 171 187.0 200 205 215

132

Estimating a and bالتنبؤ والتسعير باستخدام االنحدار (انظر

excel(

In Excel, use the =INTERCEPT and the =SLOPE functions to find the values of a and b.

Use these values of a and b to project SGA.

SGA = 55.4 + 0.1610(Sales)

133

-

50

100

150200

250

300

350

400

- 500 1,000 1,500

Sales

SG

&A

.

SGA = 0.2252(sales)من الثابتة النسبة طريقة هذه

المبيعاتالوحدة في استخدامها تم

السابقة

SGA = 55.4 + 0.1610(sales)االنحدار طريقة هذه

التسعير رسم توضيحي للتنبؤ وباالنحدار

134

Nonlinear Modelsالغير خطيةالتسعير نماذج التنبؤ و

Quadratic model Useful for assets that must increase

at a decreasing rate with sales Often inventory behaves like this

135

Inventory Exampleمثال – التنبؤ بالمخزون باستخدام االنحدار الغير

خطيمعادلة تربيعية

1995 1996 1997 1998 1999 2000 2001 2002

Sales 50 60 70 80 90 100 110 120

Sales2 2,500 3,600 4,900 6,400 8,100 10,000 12,100 14,400

Inventory 11 13 15 18 20 22 24 25

Using the =LINEST function in Excel, the equation that best fits the inventory and sales data is

Inventory = -0.00071(Sales2) + 0.331(Sales) – 4.10

136

Inventory Exampleمثال – التنبؤ بالمخزون باستخدام االنحدار

الغير خطيمعادلة لوجاريثمية

Or, alternately, if you used a log fit: Inventory = -55.8 + 16.9(ln[sales])

Notice that in the graph on the next slide, the quadratic and the log projections agree quite closely through sales levels of 225 or so, but diverge rapidly after that.

137

05

1015202530354045

0 100 200 300

Sales

Inve

nto

ry Inventory

Fitted quadratic

Fitted Logi

رسم توضيحي للتنبؤ باالنحدار الغير خطي

138

Comparison with Linear Models

مقارنة مع النماذج الخطية

The linear and nonlinear models agree on the fitted data through 2002, but disagree in their projections.

The choice of which to use—a linear model or a nonlinear model—depends on how you really expect the asset (in this case, inventory) to grow as the firm grows.

139

05

1015202530354045

0 100 200

Sales

Inve

nto

ry

Inventory

Fitted quadratic

Fitted Linear

Constant percent

Fitted log

i

رسم توضيحي للتنبؤ باالنحدارات - مقارنة

140

Lumpy Assetsباستخدام الزيادة التسعير التنبؤ و

الكمية

Not all assets can be purchased or acquired in bits and pieces.

For example, usually an entire plant must be built at one time—not half a plant one year, and another half several years later.

141

Net PP&E

100

150

200

250

300

350

1997 1998 1999 2000 2001 2002 2003

Year

Net

PP

&E

Net PP&E

باستخدام رسم توضيحي للتنبؤ الزيادة الكمية

142

Lumpy Assetsالتنبؤ باستخدام الزيادة الكمية

When there is excess capacity, then assets don’t have to grow very much to support sales. So either: Input the actual level of assets, or Choose a ratio of asset/sales, such as Net

PPE / Sales, that initially declines (reflecting the fact that the firm won’t have to add assets to support sales), and then has a large increase to reflect the addition of a lumpy asset.

143

نقطة البداية – القوائم المالية لسنين سابقة

وتوحيدها بشكل منتظم للتسعيرThe Starting Point for Corporate Valuation: Historical Financial

Statements

144

Overview of Valuation Process - PalTel

خطوات التسعير – شركة االتصاالت الفلسطينية

1. Input historical financial statements into the file: PalTel (for corp val 9-11, WACC, default inputs).xls. (This file will be called Paltel.xls for short.)

2. Provide projections for key performance drivers.

3. Obtain preliminary intrinsic value estimate.

4. Refine projections and perform sensitivity analysis to determine impact of plausible alternative performance scenarios.

145

Steps to Estimate Value Using the Corporate Valuation Spreadsheet

Excelخطوات التسعير باستخدام برنامج The valuation spreadsheet has seven interrelated worksheets, each of which performs an essential function:

(1) Proj & Val(2) Inputs(3) WACC(4) Hist Analys(5) Condensed(6) Comprehensive(7) Actual

146

Steps to Estimate Value (Continued)

خطوات التسعير

Step 1: Find the actual historical financial statements for a company, and insert them into the Actual worksheet.

Step 2: Put the actual financial statements into a standardized format using the Comprehensive worksheet. The comprehensive format has just about all the entries needed to capture variations in the formats of most companies’ financial statements.

(continued)

147


خطوات التسعيرStep 3: The spreadsheet will condense the

standardized format into statements on the Condensed sheet. These sheets have enough detail to accurately value a firm but do not have so much detail that the analysis becomes overly complicated.

Step 4: The Hist Analys worksheet begins the analysis by calculating the historical free cash flows and key ratios.

(continued)

148


خطوات التسعيرStep 5: The WACC worksheet is structured

to lead you through the calculation of the firm’s cost of capital.

Step 6: Project the financial statements by choosing key inputs, such as the growth rate in sales, the ratio of costs/sales, interest rates, etc., on the Inputs worksheet.

(continued)

149


خطوات التسعير

Step 7: The Proj & Val worksheet takes your chosen inputs for the key ratios and projects the financial statements, calculates free cash flows and performs a valuation analysis.

150

Analyze the Historical and Current Situation.

تحليل الشركة للسنين السابقة وللسنة الحالية كبدء لعملية التنبؤ

Corporate information resources:

Company WebsiteThe stock Market Website

SCA

Shuaa’ Capital

Al shabacah

AMF

151



Input ratio data for competitors (but this is already done this for you in Paltel.xls).

Check “average” of historical ratios. Check “trend” of historical ratios. Check “most recent ratio,” compared

with competitors/industry. Use “graph button” to look at historical

ratios. (continued)

152



What can you say about the company’s past performance with respect to:

Profitability (NOPAT/Sales and other ratios)? Efficiency (Operating capital/sales and other

ratios)? Comparison to its industry?

(continued)

153



What are important issues? What are signs of financial

strength? Signs of financial weakness? Signs of a growing versus a

declining industry? What is the life cycle of a firm?

(continued)

154



Important aspects for projections:

Sales growth Profitability changes Asset Utilization Working Capital Debt level

(continued)

155



More issues to examine: ROIC over time—does the

company have good investment opportunities?

Cash accumulation Extraordinary items Free Cash Flow Dividend policy

Date post:	30-Dec-2015
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Why Corporate Valuation? اهمية وأسباب تسعير الشركات

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