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Бакалаврская программа «Экономика»

Valuation of the Company

2019/2020
Учебный год
ENG
Обучение ведется на английском языке
5
Кредиты
Кто читает:
Школа финансов
Статус:
Курс по выбору
Когда читается:
4-й курс, 1, 2 модуль

Course Syllabus

Abstract

The course will introduce students to the most frequently used quantitative valuation techniques. The main topics covered include (1) discounted cash flow methods (2) relative valuation using multiples (3) asset-based approach. Particular attention is paid to evaluation of individual groups of assets under the net asset value method: financial assets, real estate, tangible real property, intangible assets. The focus of the course is on the evaluation of companies in emerging capital markets. Students will learn how to conduct firm valuation in terms of high levels of macroeconomic uncertainty, illiquid capital markets, and high levels of political risks. Participants are provided with the opportunity to work in small teams and value different groups of assets and firms in emerging capital markets. The course is blended and consists of lectures along with seminars with lecturers from School of Finance and E&Y and online video lectures from the University of Illinois at Urbana-Champaign and Stern School of Business.
Learning Objectives

Learning Objectives

  • to provide students with sufficient theoretical knowledge and practical experience to be able to value a company using three traditional approaches (income approach, market approach, asset-based approach)
Expected Learning Outcomes

Expected Learning Outcomes

  • understand the main steps of business valuation
  • apply different valuation techniques such as Dividend-models, FCFF, FCFE, relative valuation and asset based valuation
  • apply the primary methods to measure value of different groups of company assets
  • understand the importance and apply the discounts and premiums in business valuation (control premium, discount for lack of control, discount for lack of marketability)
  • identify and analyze a company’s value drivers and relate these drivers to the value enhancement process
  • understand the features of corporate valuation in emerging capital markets
Course Contents

Course Contents

  • Introduction to Valuation
    Business valuation legal and regulatory environment. Business valuation standards. The role and the process of valuation. Types of firm value: market value, fair value, investment value, intrinsic value, liquidation value, book value. Business valuation approaches and methods. Valuation across the life cycle of the firm. The main steps of corporate valuation. The impact of controlling (noncontrolling) ownership interest and marketability on company value: discount for lack of control and discount for lack of marketability. The structure of business valuation report. Necessary information to conduct business valuation: company specific data, data about the company's industry and economic environment. Financial review and pro forma analysis.
  • Income approach: discounted cash flow methods, capitalization method
    Dividend discount models: assumptions and limitations. Free cash flow to equity (FCFE) discount models. Free cash flow to firm (FCFF) discount models. Building a financial model: length of the high growth period, forecasting future performance, the main models of estimating terminal value. Forecasting financial performance: prepare pro forma financial statements for the planning period, convert pro forma financial statements to cash flow forecasts, estimate the terminal value of firm FCF. Advantages and disadvantages of percent of sales method. The equity premium and the cost of capital. The capital asset pricing model (CAPM) approach. The Fama-French three-factor model. Arbitrage pricing theory. Build-up model. The cost of equity of large (small) capitalization companies. The cost of debt and other components of the capital structure. Estimation of the cost of capital in practice. Valuation issues specific to emerging capital markets: effects of inflation on financial analysis, incorporating emerging market risks in valuation. Calculating the cost of capital in emerging markets: the CAPM-spread model. Capitalization method. Difference between capitalization rate and discount rate. Limitations of the method.
  • Market approach: public company method, merger and acquisition method.
    erger and acquisition method. Basic steps of relative valuation. Criteria for comparable company selection. The most commonly used multiples and its determinants: P/E, EV/S, EV/EBITDA, P/BV. Sector multiples. Multiples and continuation value. Adjusting multiples for leverage and growth. Pitfalls of relative valuation. Relative valuation in emerging capital markets. Factors affecting valuation ratios.
  • Cost approach: overview, individual asset valuation procedures – intangible assets
    Fundamentals of cost approach. Cost approach versus book value. Main steps of net asset value method. Identify assets and liabilities to be revalued. Construct a value-basis balance sheet. Liquidation value method. Using cost approach for IFRS and US GAAP financial statement preparation: allocation of purchase price in M&A deal. Goodwill. Advantages and disadvantages of cost approach. Valuation of intangible assets. Definition of intangible assets. Identification and classification of intangible assets. Income approach: royalty method, multi-period excess earnings method (MEEM), differential method, greenfield method. Market approach. Nature of the cost approach. Obsolescence adjustment (technological, functional, economic). Intangible asset valuation in practice.
  • Cost approach: individual asset valuation procedures – real estate, machinery and equipment
    Real estate valuation. Real estate classification. Necessary information to conduct real estate valuation. Income approach: discounted cash flow method, capitalization method. Potential gross income, net operating income, discount rate calculation. Market approach. Basic steps of cost approach. Accounting depreciation versus appraisal depreciation. Types of depreciation: physical depreciation, functional obsolescence, economic obsolescence. Depreciation estimates. Real estate valuation in practice. Machinery and equipment valuation. Machinery and equipment classification. The life cycle of the equipment. Cost approach and principle of substitution. Difference between reproduction and replacement cost. Methods of determining cost new. The influence of different types of depreciation on machinery and equipment valuation. Ways to measure physical depreciation, functional and economic obsolescence. Market approach. Complexities when using the income approach. Basic information required to perform the indirect method of the Cost approach. Machinery and equipment valuation in practice.
Assessment Elements

Assessment Elements

  • non-blocking Class participation
  • non-blocking Quizzes
  • non-blocking Team projects
    There will be two cases and one analytical task during the course
  • non-blocking Final exam
    Final exam is a set of theoretical and practical questions in the form of test (multiple choice), open questions and problems to be solved in-class in written form.
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.12 * Class participation + 0.5 * Final exam + 0.05 * Quizzes + 0.33 * Team projects
Bibliography

Bibliography

Recommended Additional Bibliography

  • King, A. M. (2006). Fair Value for Financial Reporting : Meeting the New FASB Requirements. Hoboken, N.J.: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=159616
  • Pratt, S. P., & Niculita, A. V. (2008). Valuing a Business : The Analysis and Appraisal of Closely Held Companies (Vol. 5th ed). New York: McGraw-Hill Professional. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=219493
  • REILLY, R. F. (2013). Valuing Intangible Assets in the Marital Estate. American Journal of Family Law, 27(1), 20–39. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=asn&AN=85644440
  • Wood, D. G. (2004). Regulatory programs [electronic resource] : opportunities to enhance oversight of the real estate appraisal industry / statement of David G. Wood. [Washington, D.C.] : U.S. General Accounting Office, 2004. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsgpr&AN=edsgpr.000561255