Valuation Methods
DCF, multiples, sum-of-the-parts, asset-based, residual income – when each method works and where it breaks.
advanced · 5h 00 · 30 lessons
Course content
Introduction to Valuation
Understand what valuation means, why it's crucial in finance, and its fundamental principles.
Time Value of Money Revisited
Review the core concept of time value of money, present value, and future value as the bedrock of all valuation.
Cost of Capital: Understanding WACC
Learn about the cost of capital, particularly the Weighted Average Cost of Capital (WACC), and its role as a discount rate.
Free Cash Flow to Firm (FCFF)
Define and learn to calculate Free Cash Flow to Firm (FCFF), the unlevered cash flow available to all capital providers.
Free Cash Flow to Equity (FCFE)
Understand and calculate Free Cash Flow to Equity (FCFE), the cash flow available solely to equity holders.
Discounted Cash Flow (DCF) Model Overview
An introduction to the Discounted Cash Flow (DCF) model, its core logic, and general application.
Terminal Value Estimation
Explore the concept of Terminal Value, its importance, and the methods for its calculation in DCF models.
Sensitivity Analysis and Scenario Planning
Learn to perform sensitivity analysis and scenario planning to understand the robustness of a valuation model.
Levered vs. Unlevered DCF
Distinguish between levered (FCFE) and unlevered (FCFF) DCF approaches, when to use each, and their implications.
Relative Valuation: Multiples Introduction
Introduce the concept of relative valuation using multiples, its advantages, and limitations.
Equity Multiples: P/E and P/B
Deep dive into Price-to-Earnings (P/E) and Price-to-Book (P/B) ratios, their calculation, uses, and limitations.
Enterprise Multiples: EV/EBITDA and EV/Sales
Examine Enterprise Value-based multiples like EV/EBITDA and EV/Sales, their calculation, and when they are most appropriate.
Leveraging Market Multiples in Practice
Practical application of market multiples: selecting comparables, making adjustments, and deriving a valuation range.
Sum-of-the-Parts Valuation
Understand Sum-of-the-Parts (SOTP) valuation, when to use it, and how to apply it to divisional businesses.
Asset-Based Valuation
Understand Asset-Based Valuation (ABV): its methods, applications, and limitations, especially for asset-heavy firms.
Residual Income Model (RIM)
Learn the Residual Income Model (RIM), an equity valuation method based on economic profit.
Choosing the Right Valuation Method
Understand the decision framework for selecting the most appropriate valuation method based on company characteristics.
Leveraged Buyout (LBO) Model Overview
Understand the Leveraged Buyout (LBO) model, its unique purpose, and how it differs from traditional valuation.
Venture Capital & Startup Valuation
Explore specialized valuation techniques for early-stage companies and startups without traditional cash flows.
Real Options Valuation
Understand Real Options Valuation (ROV) and its application to projects with significant strategic flexibility.
Economic Value Added (EVA)
Understand Economic Value Added (EVA) as a measure of economic profit and its role in valuation and performance assessment.
Valuation in Mergers and Acquisitions
Examine how valuation methods are applied specifically in the context of Mergers and Acquisitions (M&A).
Equity Research and Credit Valuation
Distinguish between equity and credit valuation, their different objectives, metrics, and applications.
Private Company Valuation Considerations
Address the unique challenges and adjustments in valuing private companies compared to public counterparts.
ESG and Intangible Asset Valuation
Explore the increasing importance of Environmental, Social, and Governance (ESG) factors and intangible assets in modern valuation.
Valuation Challenges and Limitations
Discuss the inherent difficulties, subjective judgments, and limitations present across all valuation methodologies.
Reconciling Valuation Approaches
Learn how to reconcile and interpret conflicting results from different valuation methodologies to derive a cohesive conclusion.
Forecasting Best Practices
Master best practices for financial forecasting, including revenue, expense, and working capital projections.
Valuation for Financial Reporting and Tax
Understand specialized valuation requirements for financial reporting (e.g., goodwill impairment) and tax purposes.
Professional Ethics in Valuation
Examine the critical role of professional ethics, independence, and objectivity in valuation practices.