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Finance (Fach) / Company Valuation (Lektion)

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• Basic Idea of Company Valuation (1) Indirect approach: value assets first and later equity, bexause need to estimate future Dividends Value of the Assets of the Company (Enterprise Value) - Value of Debt  = Value of Equity (2) Direct approach Value of Equity + Value of Debt = Vallue of Assets 
• Valuation Principle Price (Security) = PV (Future CFs) Bonds: PV is evaluated using competitive market prices, but we know the Coupon Payment Stock: Future CFs are uncertains -- > Expected Values In perfectly efficient markets, every investment should have an NPV of 0 Equity Cost of Capital (CAPM) ;  => Investors will requirte a return on the stock equal to what they expect to earn on other investments with similar risk
• Dividend Discount Model Expected Return on a Stock = Expected return availabe on other securities with similar risk (1) derived from: N-year horizon P0 if firm is acquired  Div1/1+rE +......+ DivN+PN /(1+re) (2) used in N-year horizon P0 if the firm is never acquired  Stock price should equal the Present Value of future Dividends Fundamental Value of the stock Best for mature industries: constant growth perpetuity
• Total Payout Model P0 = Value of Equity / #shares  EPS = Total Payout Rate + Plowback Ratio  r = DIV / P + g RONI = EPS / BV(share) Plowback Ratio = 1 - DIV/EPS g = Plowback * RONI Then, P0 = (TPR)*EPS / rE-gE  What is no Dividends are paid?  even if a stock does not pay dividends, people are likely to buy it because the price will increasse.  They will invest if the next person to buy it after them will pay a higher price. But if it is not worth anything, people will short the investment and the price will drop.  However, we assume that the last person on earth will not buy the stock, hence, if the stock will never pay Dividends, the Price is 0 What is the Dividend of Bitcoin then? The Dividend is the possibility to use it, to get benefits from it, transaction value Bitcoins actualluy have real assets backed by government of currency Bubble: All wait for so to pay a higher price. When the last person on earth will get nothing, then it is a bubble
• Dupont model of Growth Short term Growth can come from increased Net Profit Margins or Asset efficiency  Long run growth generally comes from investments in new assets, which is financed by Retained Earnings  Assumptions: Net Profit Margin & Asset Turnover Constant No Equity issues  Earnings Growth = Retention Rate * RONI 
• DCF Valuation Difference between Enterprise Valuation & Project Valuation We do not know initial investmentss We need future CaPex (new investments) Company likely to be around forever Relevant Cash Flows: (1) FCF to Equity = Cash after building up working capital Paying debt  making investments  Issue capital  paying off debt, issuing new debt  ==> Dividends or share repurchases (2) FCF to Assets / Enterprise Cash that would have been available to shareholders if company had 0 debt =  Indirect Evaluation of Equity, more popular: Free Cash Flow: EBIT (1-Tax Rate) + Depreciation - Investment in Working Capital - New Investments  Ebitda (1-T) - CAPEX - ΔNWC + depreciation tax Shield If we want the Equity Value -- > substract Net debt  We could also discount FCF to Equity at the cost of Equity, which will give the value of Equity directly 
• Valuation Techniques - Summing Up Relative:Multiples: P/E, EV/EBITDA, Market-to-Book Ration, EV/Subscribers,... Mix: Value early CFs explicitly, then apply a multiple for the continuation value Absolute: Discounted CFs to the firm or Euqity, PV, of Dividends, Asset Liquidation Value  - Most investment bankers use several methods including DCF and multiples. They should give the same answers and can be used to cross check results -Exploit differences to learn more about value  If: CFs can be predicted well: DCF If there are many similar firms: Emphasize comparable rati

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