Appraisal of Traditional Methods of Equity Analysis
- Application and use of Earnings per Share (EPS), Return on Capital Employed (ROCE), Price/Book, Price/Sales and the Price/Earnings ratio
- Problems and limitations of measures
Adjusted Traditional Methods
- EV and EBITDA
- Advantages of an enterprise approach to evaluation
- Problems and limitations which remain
Introduction to Cash Based Performance and Valuation Methods
- Using cash to measure return
- Principle of required return and adding value
- Comparing returns against required returns
- Applying discounted cash flow techniques to calculate market value
The Capital Asset Pricing Model (CAPM) and the Cost of Equity
- Systematic and unsystematic risk
- Application of beta
- Deriving the cost of equity using CAPM
Alternative Measures of the Cost of Equity
- The ideas of Arbitrage Pricing Theory (APT)
- The Dividend Valuation Model (DVM)
Deriving the Cost of Debt
- Calculating the required yield on debt
- Considerations of currency and inflation matching
Weighted Average Cost of Capital (WACC)
- Calculation
- Net debt and the WACC
- Forecast WACC
- Gearing and its impact on WACCs and Values
Free Cash Flow (FCF)
- Applying Discounted Cash Flow (DCF) techniques to FCF
- FCF for equity holders
- FCF for the enterprise
- Key economic assumptions used to structure a forecast
- Terminal values and their derivation from both multiples and DCF
- Sensitivity analysis and its interpretation
Economic Value Added (EVA)
- Purpose (performance and valuation measure)
- Deriving the inputs for an EVA calculation
- Stern Stewart & Co adjustments and their rationale
- Linkage of EVA, MVA, and DCF ideas
- Practical solutions to externally applying EVA-type analysis to companies
Holt's Cash Flow Return on Investment (CFROI)
- Introducing the CFROI metric
- Determining the CFROI
- Holt's unique implied cost of capital
- Deriving a valuation using CFROI
Real Options and Options-Based Valuation Models
- Using option pricing models for companies suffering from financial distress
- Introduction to the real options methodology
