Advanced Equity Valuation

£695.00 +VAT

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Advanced Equity Valuation Course Objectives

Participants will:

  • Further enhance their understanding of Equity Valuation
  • Review the five steps of DCF valuation and the key issues affecting terminal value, WACC and enterprise value to equity reconciliation
  • Get an overview of advanced discounted cash flow valuation and fast growing companies and the use of multi-period terminal value and fade rates
  • Have explained to them stock options expenses including the essentials of stock based compensation accounting and the multiples adjustments (EV/EBIT)
  • Gain an understanding of the non-controlling interests and associates
  • Get to grips with the differences between operating and financing / capital leases and the fundamentals of operating and financing / capital lease accounting
  • Learn Moody’s multiple method and present value of non-cancellable lease
  • Get an overview of fundamentals of pension accounting and the defined benefit vs. defined contribution plans
  • Have explained to them the weighted average cost of capital (WACC)

This course can be presented in-house via live webinar.

Background of the trainer

The trainer has 15 years of experience in accounting and investment banking at leading firms and is an experienced financial trainer who has delivered courses for financial institutions in the City of London and around the world, in the areas of Corporate Finance, Equity Valuation (Industrials and Banks), Financial Modelling, M&A, LBO, Financial Accounting, Capital Markets, Bank Regulatory Capital, Financial Risks, both in English and French.

Advanced Equity Valuation Course Content

DCF and Multiple Valuation Reminder

  • Reminder of the five steps of DCF valuation
  • Review of trading multiples
  • Discussion of key issues affecting Terminal Value, WACC and Enterprise Value to Equity reconciliation

Advanced DCF Valuation

  • Fast growing companies and the use of multi-period terminal value and fade rates
    • Two-stage terminal value (growing annuity followed by a perpetuity growth rate)
  • Valuation of Net Operating Losses (NOLs)
  • Normalised steady-state cash flows to avoid abnormal terminal value
    • Use of target RoIC vs. WACC returns
  • Effective and marginal tax rates
  • Mid-year discounting on cash flows
  • Flexible valuation dates

Case study I Modelling of two-stage terminal value

                             Modelling of NOLs, flexible deal dates and mid-year discounting

Weighted Average Cost of Capital (WACC)

  • Review of capital asset pricing mode (CAPM)
  • How to think about cost of equity for private companies
  • How betas are derived – regressing company and market returns
  • Which beta to choose for company valuation?
  • Why unlever betas? How do we unlever betas?
  • Use of Damodaran industry betas
  • Optimal capital structure and gearing risk

Case study II Unlever and relever betas for a food manufacturing company

Enterprise Value to Equity Value Issues 

Stock Options Expenses

  • Essentials of stock based compensation accounting
    • Expensing to the income statement over the vesting period
  • Intrinsic value of stock based compensation
    • Treasury method of accounting for stock based compensation
  • Restricted stock and performance stock units
  • Multiples adjustments (EV/EBIT)
    • Fully diluted market capitalisation in EV
    • EBIT post stock option expense
  • DCF adjustments
    • Stock option expense to be included in FCF
    • Diluted share count to compute equity

Case study III Analysing the stock options of Linkedin

Non-Controlling Interests and Associates

  • Accounting for NCI
  • NCI valuation
    • Book values
    • Market values
    • P / E multiples, Price to Book multiples
  • Adjustments of NCI to multiples (EV/EBIT)
    • Include NCI at market value in EV
    • EBIT to include both parents and NCI earnings
  • Adjustments of NCI to DCF
    • Deduct NCI at market value from EV to reach Equity
  • Accounting for equity affiliates / associates
  • Equity affiliates and core, consolidated and total EV
  • Equity affiliate valuation
    • Book values/Market values/Multiples
  • Adjustments for equity affiliates to DCF and multiples
    • Depends on definition of EV (core, consolidated or total)

Case study IV – AB InBev and subsidiaries’ NCI
                          AB InBev and Grupo Modelo as associate

Operating Leases

  • Differences between operating and financing / capital leases
  • Fundamentals of operating and financing / capital lease accounting
  • Moody’s multiple method and present value of non-cancellable lease arrangements
  • Operating leases adjustments to multiples
    • Capitalised operating leases to be added to EV
    • Rental expense to be allocated between interest expense and depreciation
  • Operating leases adjustments to DCF
    • Free cash flow post rental expenses
  • New accouting rules to abolish difference operating vs. finance leases

Case study V – Computing Ryanair and Easyjet adjusted EV/EBIT

Pensions

  • Fundamentals of pension accounting
  • Defined benefit vs. defined contribution plans
  • Funded vs. unfunded plans
  • Pension deficits and surpluses
  • Pension adjustments to multiples
    • Add pension deficit to enterprise value
    • Only service costs to remain in EBIT
  • Pension adjustments for DCF
    • Only service cost in EBIT/free cash flow
    • Deduct pension deficit from EV to equity

Case study VI – Analyse the pension deficit of British Telecom

Advanced Equity Valuation Course Summary

This Advanced Equity Valuation course covers the more advanced areas of Equity Valuation. Participants discuss complex issues such as a two-stage terminal value, valuation of net operating losses, WACC for private companies and issues in the reconciliation between enterprise and equity value (associates, non-controlling interests, operating leases, pension deficits).

Much of the course work involves Excel modelling and analysis, equipping participants with the tools to further enhance their understanding of valuation issues:

  • Building up from partially-complete models on real case scenarios

Each participant should bring a laptop to the course to facilitate modelling work.

 

 

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06 June 2018, 17 October 2018