Lecture Series 2 Corporate Finance Valuation Analysis Chris

Lecture Series #2 Corporate Finance & Valuation Analysis Chris Droussiotis October 2011

Table of Contents l l l 2 TIME-Value of Money, Risk and Return concepts Valuation Methods for Publicly Traded Companies (Methods 1, 2, 3) DCF Analysis (Method 4), CAPM Applying DCF for Privately own companies Debt Capacity / Equity Requirments WACC and Equity Returns

Time Value Concepts l Time-Value of Money, Risk and Return Concepts – PV / NPV Concepts l l l – IRR l l – Risk Free Return (1 - Y) Risky Return (Y) Measuring Risk l l l 3 Future Cash Flows Discount Rate Annuity / On-time investment Fundamental Analysis – projection assumptions Technical Analysis – Volatility comparison (Beta concept) Behavioral Analysis - EMH

Valuation Methods – Method #1 • Using the Stock Price – Base Case 4

Valuation Methods – Method #2 • Using the EBITDA Trading Multiples – Comparative Analysis 5

Valuation Methods – Method #3 • Using the EBITDA Acquisition Multiples – Comparative Analysis 6

Valuation Methods – Method #4 l DCF Analysis – FIRST STEP: l Building Projections – determining the Equity Cash Flows – Top Line – Bottom Line (unleveled) – SECOND STEP: l – THIRD STEP: l – Terminal Value – use two methods FOURTH STEP l 7 Determine Exit Year Discount Rate (Weighted Average Cost of Capital (WACC)

DCF Analysis – Building up the Projections 8

Valuation Analysis - Method #4 (DCF) 9

Valuation Analysis - Comparison 10