Business Valuation

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Course Outline

Module 1) Introduction to Business Valuation

1. The role of the public markets in business valuation
2. Common valuation methodologies
3. Why discounted cash flow is the best approach
4. Introducing Kellogg’s as our case study

Module 2 ) The Foundations of Free Cash Flows

1) Cash flow vs. free cash flow
2) Determining free cash flow
3) Reconciling free cash flow with the consolidated statement of cash flow
4) Value Drivers
5) Projecting Kellogg’s free cash flows for the projection period based on the value drivers

Module 3 ) The Weighted Average Cost of Capital

1) Introducing the weighted average cost equation
2) Calculating the after-tax expected cost of debt
3) Using CAPM to calculate the expected cost of equity
4) Calculating the weighted average cost for Kellogg’s before and after the Keebler acquisition
5) The effect of leverage on weighted average cost

Module 4 ) Terminal Value

1) Defining terminal value and its impact on the DCF valuation
2) Methods for determining terminal value
3) Determining the most appropriate terminal value for Kellogg’s

Module 5 ) The DCF Approach to Business Valuation

1) Measuring shareholder value creation
2) Discounting to find the value of operations
3) Determining the total entity or market value
4) Determining the total value of equity and per-share value of equity
5) Valuing Kellogg’s using the DCF approach

Module 6 ) The Limitations of the DCF Approach

1) Sensitivity of DCF valuations to the assumptions made
2) Using sensitivity analysis to improve the base case valuation
3) Scenario analysis and Monte Carlo simulations

What You Will Learn

  • Identify the rationale and scenarios for doing business valuations
  • List the roles played by the public markets in business valuation.
  • Recognize the different methods used to value businesses.
  • Identify three reasons why the DCF model is the method of choice for valuing businesses.
  • Describe the difference between cash flow and free cash flow.
  • List the differences and similarities in the direct and indirect methods of determining free cash flow.
  • Recognize the value drivers of free cash flows.
  • Identify components of the calculation of free cash flow from the value drivers, using the direct method.
  • Define leverage in terms of its influence on the WACC.
  • Determine the elements necessary to calculate the after-tax expected cost of debt.
  • Recognize the elements of the CAPM formula.
  • Describe the role of beta in determining the cost of equity.
  • Calculate the expected cost of equity and WACC.
  • Define terminal value and its role in company valuation.
  • List and describe each of the methods of determining terminal value.
  • Describe the factors that influence the choice of valuation method.
  • Recognize the components of Total Entity Value and its relationship to the Value of Equity.
  • Calculate the per-share value of equity.
  • Using the DCF approach, determine whether or not the Keebler acquisition added value to Kellogg’s.
  • Identify the impact of changes in value drivers, WACC and terminal value assumptions on a base case valuation through sensitivity analysis.
  • Describe the use of scenario analysis to improve a base case valuation.
  • Recognize limitations of the DCF methodology.

Who Should Take This

Individuals in credit, investment banking, corporate finance, and sales and trading.

Instructor Biography

Peter C. Freeman has over 30 years’ experience in financial management, creating financial infrastructure and raising capital for established, startup, and turnaround companies. He serves as Chief Financial Officer, developing business plans, identifying operational improvements, rebuilding balance sheets, and upgrading financial control systems. He has arranged financings with a total value exceeding $1 billion, including private equity, real estate loans, revolving lines of credit, asset‐backed loans for equipment and receivables, and wide range of project financings.

Peter works with large and small companies in a variety of industries, including construction, real estate development, software, manufacturing, transportation, power, financial services, non‐profits, and government agencies. Assignments for early stage companies include Inktomi, Amarantus Theraeutics, Cortexion, Selena Pharmaceuticals, and By‐the‐Bay Baking. He also held senior financial management positions with Dillingham Construction Corporation, Homestake Mining, British Petroleum, Intel, and Wells Fargo Bank. Peter is the former Treasurer of Dillingham Construction Corporation, a $1.3 billion global engineering and construction company, where he navigated through cyclical downturns and assisted in planning and implementing a management buyout, including private equity and employee ownership.

Peter created the Treasury Department for Dillingham and has developed financial control systems for numerous companies. Peter received an MBA in Finance at the University of Chicago and a BA degree in Economics from Amherst College. He is an Adjunct Professor of Finance at Golden Gate University and previously taught accounting at Merritt College. He is former President San Francisco Bay Area Financial Executive Networking Group (FENG), active in community organizations and trade associations such as the Turnaround Management Association, and served two terms on the Advisory Council to the US Export‐Import Bank.

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