Comprehensive course analysis
Who should attend
- Investment bankers
- Fund managers
- Equity analysts
- Equity traders
- Equity sales
- Corporate finance lawyers
- Credit analysts
- Treasurers and finance directors
- Compliance officers
About the course
Elevate your knowledge of financial analysis and corporate valuation techniques
This comprehensive 5-day programme comprises two days of training in financial analysis underlying corporate valuations, followed by the three days of training in corporate valuation techniques.
The valuation of corporates is a fundamental skill required of a wide range of finance professionals including equity analysts, strategists, corporate finance executives, fund managers, PE/VC executives and general bankers. The recent volatility of corporate valuations, combined with the emergence of new sectors, makes understanding the theory and practice of valuation essential. Module 1 of the course offers a comprehensive introduction to financial analysis from the point of view of valuation. Module 2 then gives a detailed theoretical background to a range of valuation methodologies, followed by plenty of case studies to apply these theories to real life situations.
Course aims and objectives
Module 1 – after completing this Module, delegates will learn: * how to analyse a firm’s financial statements when undertaking corporate valuations, including how to derive underlying earnings and cashflow * ratio analysis, including profitability, performance, leverage, liquidity, returns to firm and equity * the impact on valuation of debt, financial assets, quasi-debt, provisions, deferred taxes, off balance sheet liabilities and other factors
Module 2 - after completing this Module, delegates will learn: * valuation fundamentals * equity and EV multiple valuations * DCF valuations * how to apply different valuation techniques * forecasting techniques, using Excel, to establish valuation ranges * the impact of capital structure on valuation * the impact of corporate finance transactions on valuation * how qualitative factors influence valuations
This practical course is taught using an inter-active classroom format that comprises lectures followed by short, practical and inter-active case studies and exercises to reinforce the concepts covered in each teaching session. Emphasis is placed on delegates gaining handson experience of the various valuation techniques.
*Module 1: Financial Analysis for Corporate Valuation *
Day 1: Morning
Session 1: Income statement analysis
- Analysing and forecasting revenues
- The impact of IFRS15
- What are the key revenue drivers and what are their trends?
- Pricing, volumes, currencies, acquisitions, disposals
- Customer, product/service and geographical concentration
- The nature of the cost base including sources of volatility
- How depreciation policies impact EBIT, net income and eps
- How different inventory policies impact earnings
- Fixed versus variable costs – impact on margins
- Provision charges and write-backs
- Defining finance expense and finance income
- Capitalised interest and other capitalised expenses
- Dealing with lease expense (following the introduction of IFRS 16)
- Dealing with exceptional and non-core items
- Assessing underlying EBITDA
Case studies: calculating underlying earnings and net finance expense
Day 1: Afternoon
Session 2: Income statement analysis continued
- Analysing the differences between IFRS earnings and management’s adjusted earnings
- The impact of joint ventures, associates and NCI
- Taxation rates and deferred tax
- Detailed ratio analysis
- Calculating and analysing key operational and financial ratios
- Gross margin, EBITDA margin, EBIT margin, pre-tax margin, net margin
- Interest cover ratios
- Dividend cover and enhanced dividend cover ratios
Case studies: calculating revisions to management’s adjusted earnings; calculating and interpreting income statement ratios
Cashflow statement analysis
- Direct versus in-direct cashflow statements
- Understanding the volatility and predictability of the firm’s cashflow
- Deriving operating cashflow, including changes in NWC
- Understanding typical non-cash and cash adjustments (provisions, extra pension contributions, gains/losses on disposal, impairments, stock option expense etc)
- Do operating earnings generate operating cashflow?
Case study: moving from EBIT to operating cashflow
Session 3: Cashflow statement analysis continued
- Net operating cashflow – deducting net finance expense and tax paid
- Understanding dividends received from joint ventures, associates and investments
- Investment spending, gross and net - are new investments adding value?
- The financing section of the cashflow statement
- How lease repayments are treated in the cashflow statement
- Does the firm generate sufficient cashflow to cover its tax, debt servicing, investment spending and any dividends?
- What is the potential for paying dividends and for share buybacks?
Case studies: commenting on a variety of cashflow statements; calculating and analysing cashflow ratios – interest cover, debt service cover, years to repay gross debt, investment cover, dividend cover, cash conversion ratios, dependence on external funding
Session 4: Balance sheet analysis
- The nature of the asset base: PP&E, intangibles, financial assets, joint ventures and investments
- How are the assets valued?
- What is the outlook for impairments or revaluations?
- What are the assets lives and what is the outlook for maintenance and expansionary capex?
- Understanding the firm’s capital intensity and operating leverage
- Understanding NWC and accrued income, including seasonality
- Is there any value in non-consolidated entities?
- What to include in gross debt: bank debt, bonds, derivative liabilities, supplier finance, leases, shareholder loans, pension deficits etc
- What to include in financial assets: cash, investments, derivative assets
- Valuation adjustments for off balance sheet liabilities:, short term operating leases, contingent liabilities, securitised receivables etc
- Valuation adjustments for NWC, deferred tax assets and liabilities, provisions, cash pledges, restricted cash, deferred revenues
- Is the book value of equity important to the valuation?
- What is the impact of credit metrics (leverage, interest cover, interest rates, liquidity, covenant breaches) on valuation?
Case studies: finding the valuation impact of line items in a range of balance sheets; calculating and interpreting key balance sheet ratios to assess a firm’s financial position relative to its sector – leverage, liquidity, working capital, ROCE, ROE
Module 2: Corporate Valuation – Techniques and Application
Session 5: Introduction to corporate valuations
Analysing recent trends in corporate valuations
Enterprise value versus equity value * Calculating equity value including NCI * Calculating gross debt and net debt * Adjusting for provisions, quasi-debt, equity linked instruments, equity kickers, options, capital commitments etc * Adjusting for off balance sheet liabilities
Case study: moving between EV and equity value
Background to corporate valuations * Valuation fundamentals * Drivers of valuation – ROIC, WACC, growth, size * The FCF perpetuity valuation formula * The key value driver valuation formula * ROIC vs. WACC – computation and drawbacks
Case study: valuing companies using the above formulae
Session 6: Multiple valuations
- Equity multiple valuations based on net income, EPS, dividends and NAV
- PE ratios, PB ratios and dividend yields
- EV multiple valuations based on revenues, EBIT, EBITDA
- Adjustments to group EV to derive operating EV
- Adjustments to EV multiples to derive the correct underlying multiple
- Choosing comparable firms and creating a peer group
- Reconciliation of multiple valuations to the key value driver formula
- Examining how using different multiples gives different valuations
- Earnings versus cashflow
Case studies: valuing companies using multiple analysis
Session 7: DCF valuations
- Background to DCF valuations
- Calculating OPAT and unlevered free cashflow
- Explicit forecast period and terminal value
- Calculating the terminal value: perpetuity method, multiple method, liquidation method
- Importance of final year forecasts – fading the forecasts
Case studies: calculating OPAT, unlevered FCF and TVs
Session 8: DCF valuations continued
- Calculating the WACC
- Calculating the cost of debt; different types of debt and multi-currency debt
- Working out the value of the tax shield
- The CAPM
- Calculating the risk-free rate
- Calculating the equity risk premium
- Betas – levered and unlevered
Case studies: modelling DCF valuations in Excel; comparing valuations using multiples vs. DCF
Session 9: The impact of corporate finance transactions and capital structure on valuation
The impact of corporate finance transactions on valuation * Friendly/hostile takeover * Merger * Demerger/spinoff/break-up * IPO of subsidiary or affiliate business
Case study: review and comment on recent corporate finance transactions and the valuation impact
The impact of capital structure on valuation * Increasing equity value through the use of debt * Focus on shareholder value – dividend policy and share buybacks * Companies suited to leverage * Debt markets and credit ratings * Analysing debt capacity
Case study: working out a firm’s debt capacity
Session 10: The impact of qualitative factors on valuation
What are the key business risks faced by the firm and are there any mitigating factors?
Analysis of the sovereign and macro-economic conditions
- What are the levels of and trends in sovereign credit ratings where the firm has its main areas of activity?
- What are the macro-economic influences?
- Currencies, inflation, interest rates, growth rates, political risks
Analysis of the industry and market * Is the business environment changing? * What are the main threats and opportunities facing the industry? * Technological, demographic, political, ESG, climate change, new entrants, disruption, consolidation * What is the competitive landscape - Porter’s five forces? * What is the growth outlook? - industry life cycle and cyclicality * What is the capital intensity and cost base profile of the sector? * What is the earnings quality? * What are the leading indicators? * What are the pricing dynamics? * Is regulation a threat or a support?
Analysis of the company’s specific characteristics * What are the firm’s strategies? * Commercial, treasury, capital and corporate finance * What are the firm’s market positions, competitive advantages and cost position – does the firm create value? * How does the firm compare to the peer group? * What is the product/service offering? * Is it differentiated, is there any pricing power? * Does the firm suffer from buyer power or supplier power? * Does the firm benefit from geographical and revenue diversification? * Does the firm benefit from vertical integration? * Does the firm have currency or commodity exposures? * Management, the Board and corporate governance
Case study: assess the main risks and mitigating factors for a chosen group
Session 11: Course recap and final valuation exercise Delegates are introduced to a financial forecasting model with embedded scenarios
Final case study: Delegates undertake valuations of a firm relative to a peer group and on a DCF basis, using a financial forecasting model and taking account of qualitative factors; they vary the valuation using the scenario functions.
Former Executive Director of CSFB and Lehman Brothers, Sarah Martin has spent seventeen years working as an investment banker in Europe and the US. She has principally worked in the credit markets and has experience of the US and European high grade and high yield markets, the European new issue ...
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