Session 1:

Free Cash Flow

• The concept of free cash flow

• The key variables for forecasting free cash flows in Enterprise DCF

• Determining how long the forecast period should be

• Case-study: Critiquing assumptions used to forecast a company’s free cash flow

Session 2:

Terminal Value

• The importance of Terminal Value and the different methods used

• Terminal value approaches and some common errors

• Case-study: Selecting Terminal Value methods for different companies and circumstances

Session 3:

Cost of Capital

• Significance of a company’s Weighted Average Cost of Capital

• Key steps in estimating cost of debt and equity

• Use of the Capital Asset Pricing Model for estimating Cost of Equity

• Significance of the Equity Risk Premium, historic data and differences in views

• Which beta to choose, how to validate, adjusting for business risk and leverage

• Drawbacks of the CAPM and alternative approaches

• Where to find data to use for an unquoted company

• Case-study: Global Betas

• Case Study: Selecting the appropriate beta for a UK company based on a selection of beta charts for the company and key competitors

Session 4:

Determining Equity Value

• Converting forecast free cash flows into a DCF valuation

• From Enterprise Value to Equity Value

• Case study: Simple DCF - discounting free cash flow to derive Equity Value

Session 5:

Drawing Conclusions

• Using multiples as a reality check for DCF valuation

• Sensitivity analysis and scenario modelling

• What usually goes wrong?

• Case study: Reviewing results of DCF valuation using an Excel model provided, adjusting Terminal Value and Cost of Capital, checking comparable multiples, sensitivity analysis, and recommending a ‘target’ price range

Session 6:

Alternative Approaches

• When to use the equity cash flow approach

• Adjusted Present Value (APV)

• How economic profit valuation compares to DCF

• Relevance of EV/IC vs. ROIC/WACC analysis

• Case Study: Choosing between use of DCF or other methods, using mix of valuation methods used to value companies in different industries

Course Close