applied corporate finance. what is a company worth?
DESCRIPTION
A thoroughly researched Corporate Finance manual, the fruit of all the understanding the author has gained in this material over his years of professional practice. A rigorous approach to fundamental Ideas, avoiding unnecessary complications Highly convenient for those who: - Already know about these matters, but they would like to refresh them and keep a book for consulting by their side (financial managers, consultants, engineers, business & MBA students, etc). - Need to master financial concepts in order to enhance their professional or academic performance - Want to really know what their money & investments are worth. Here is the rationale.. The author deals with all questions clearly, pragmatically, allowing the readers intuition to guide them forward. However, he never sacrifices his rigorous analysis, necessary to meet the standards of the best business schools in the world. He includes some case studies which show how the key concepts are applied. In the Core chapters, written in an accessible style, the book presents the fundamentals it is necessary to master in order to understand corporate finance and its typical applications such as the valuation of companies and investments in general. The author leads us through questions like the cost of financial resources for the company, shareholders’ equity and external funds and the w.a.c.c, the search for the optimum capital structure and the strategic policies that ensure an adequate financial policy To explain all this, the analysis counts on solid tools and knowledge, which have been applied through the Gordon-Shapiro formula, the CAPM (Capital Asset Pricing Model) or the Modigliani and Miller model, among others. Suitable for beginners too: The first chapter starts at a basic level for inexpert readers and then moves into the key matters of corporate finance that it is necessary to master. This chapter deals with basic questions on the discounting and capitalization of different cashflows, methods for NPV (Net present Value), IRR (internal Rate of Return), Pay-back, etc. and the reasoning behind all of them. The book explains how to deal correctly with inflation when making any analysis. The author has explained the basic concepts in some exercises so that the reader can master them before moving on to more complex issues. There is also an Appendix on the value over time of money, a correct valuation of different structures of bonds and other basic financial concepts and some key basic exercises. The final part of the book explores the valuation of companies, applying all that the reader has learnt up to now. The author also brings together all the themes worked on and enriches them with a great deal of his experience and practical advice, reason why this book is such a useful tool for those who have to make investment decisions.TRANSCRIPT
TABLE OF CONTENTS
1-Measuring the profitability of investmentsCriteria for the analysis of investmentsProject definitionSimple return on investmentFirst Considerations on other methods: calculation of cash flowsThe Pay-back periodNet Present Value Method (NPV)Internal Rate of Return (IRR)
Relationship between the Present Value and the IRRDiscounting Cash Flows with and without inflationIndexed financial flows. Rates with or without inflationThe question can get more complicatedThe practical effect of amortization on historical acquisition valuesThe effects of inflation on the Operational financial necessitiesOther effects on the profits in accounting records and taxesConclusionThe IRONSOUHTH caseFINALTERNA caseThe FERSA case
2-The cost of Permanent Resources ( Equity and external resources)The cost of DebtThe cost of debt for the company. Introduction of the effect of taxes.The cost of the capitalThe Gordon-Shapiro model for the calculation of the cost of the company’s funds “Ke”Estimating the “g” factor for the Gordon-Shapiro modelWhat is the best method to estimate “g”?Average Cost of the Permanent Resources. The Weighted Average Cost of Capital: WACCFactors that affect the cost of the permanent resources
3-The Capital Structure and the Optimun Debt levelThe theory of Optimal Capital Structure and the Modigliani & Miller formulaHow the reality does not always match up to the theory ( Modigliani & Miller)Avoiding serious mistakes. How the Modigliani and Miller formulas can lead you into errorAnd even worse. The leveraged beta formulas and without leverageAnd now what shall we do with the real problem of the structure of capital?Putting a financial strategy into practiceConclusions on the practice of taking financial decisionsExercises on the cost of resources
4-The CAPM. Calculation of the Cost of EquityCalculation of the cost of the resources wuith the Capital Asset Pricing ModelThe CAPM formula is a simple Regression modelCalculating βConclusions reached so farThe CAPM for Asset pricingFor the cost of Capital: how to go from the CAPM one period model to the formula
Limitations of the CAPM model
5-Methods to Value a CompanyValue and priceMethods based on the Balance sheet
Net Asset Value & Real Net Asset ValueTerminal Value & Replacement ValueMethods based on the Profit and Loss AccountValue of the profits. PERValue of the dividendsMultiple of salesOther multiplesExample. Use of the multiples method to value a company (case)Multiples methods used to value companies in InternetMethods based on Discounted Cash FlowPresent value, but of what? The concept of flows of fundsGeneral method for discounting cash flowsDetermination of the correct cash flow rate for discountingEnsuring the company’s financial balance is correctThe “free cash flow”The “cash flow” available for shares“Capital cash flow”Calculation of the company value through the free cash flowCalculation of the unlevered company value plus the value of the tax savings due to the debt (APV adjusted present value).Calculation of the equity value from the cash flow available for the sharesA numerical example and reflections on market valuesThe main stages in company valuation by discounted flowsCritical aspects in a valuationThese methods give good results in any situationThe break up value of a companyThe specialists’ opinion on the valuationKey factors that affect the company’s value: growth, return, risk and the interest ratesSome commentaries on valuationThe most common errors when valuing companiesCase: CONSULTANCY vs. INVESTMENT BANK: valuation of a TELCO
6- Appendix: The Value of Money over TimeThe time factor. The concept of compound interestElements: Time, Interest, Flows of fundsEquivalence between a present flow and a future flow.Inflation and the Value of Money over timePresent value of a perpetual incomeSolved exercises on basic concepts
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