Valuation theories and concepts 1st Edition by Kumar,Rajesh 9780128023037 0128023031

Part I: Theories and Concepts

1. Perspectives on value and valuation

Abstract

1.1 Introduction

1.2 Application of valuation

1.3 Approaches to valuation

1.4 Steps in value creation

1.5 Value drivers

1.6 Empirical evidence on value drivers

1.7 Strategic models of valuation

1.8 Stock price maximization

1.9 Linkage between strategic management and shareholder value

1.10 Challenges in valuing intangibles

1.11 Innovation and value creation

1.12 Review of research studies on usage of valuation methods

1.13 Challenges for valuation

1.14 Review on theories of valuation

1.15 Most valuable companies

Appendix: Financial statement analysis

Analysis of growth potential

Fundamentals of valuation

Bond valuation and interest rates

Basics of stock valuation

Summary highlights of stock valuation

References

2. Risk and return

Abstract

2.1 Introduction

2.2 Accounting and risk measures

2.3 Measures of returns

2.4 Risk premium

2.5 Models of risk and return

References

3. Efficient capital markets and its implications

Abstract

3.1 Introduction

3.2 Forms of efficient market hypothesis

3.3 Tests of EMH

3.4 Review of research studies on market efficiency

3.5 Anomalies of EMH

3.6 Implications of EMH

3.7 Behavioral finance

References

4. Estimation of cost of capital

Abstract

4.1 Introduction

References

5. Principles of cash flow estimation

Abstract

5.1 Introduction

5.2 Adjustments to financial statements

5.3 Adjustments of expensed investments

5.4 Reflections on managed earnings

5.5 Estimating reinvestment needs for valuation

5.6 Forecasting growth

References

6. Discounted cash flow valuation models

Abstract

6.1 Introduction

6.2 Dividend discount model

6.3 FCF valuation models

6.4 Adjusted present value method

6.5 Value of nonoperating assets

6.6 Estimation of total value of firm

6.7 Theoretical perspectives on free cash flow valuation

6.8 Research studies on FCF models

6.9 Estimation of value of Hyundai Motors through FCFE and FCFF valuation models

6.10 Estimation of value of Sasol through the two-stage FCFF model

References

7. Relative valuation

Abstract

7.1 Introduction

7.2 Advantages and disadvantages of relative valuation

7.3 Drivers of relative valuation

7.4 Steps in relative valuation

7.5 Relative valuation techniques

7.6 Industry-specific multiples

7.7 Research studies on relative valuation

7.8 Principles of relative valuation

7.9 Cases of relative valuation

References

8. Mergers and acquisition valuation

Abstract

8.1 Introduction

8.2 Types of mergers and acquisitions

8.3 Synergies in mergers

8.4 Drivers of value creation in different types of M&A

8.5 Empirical evidence on value creation in M&A

8.6 M&A valuation

8.7 Valuation of M&A synergies

8.8 Payment to target firms

8.9 Bootstrapping

8.10 Empirical studies involving methods of payment

8.11 Empirical studies on performance of merged companies

8.12 Principles of evaluation of bids

8.13 Illustration of financial variables in merger analysis

References

9. Real options valuation

Abstract

9.1 Introduction

9.2 Real options as strategic investments

9.3 Limitations of discounted cash flow methods

9.4 Different types of real options

9.5 Solution approach to option valuation

9.6 Real options in different industry sectors

9.7 Factors affecting the value of real growth options

9.8 Real options in mergers and acquisitions

9.9 Empirical studies on real options

9.10 Real option valuation using decision tree approach

9.11 Real option valuation using Black Scholes model

References

10. Valuation of different industry sectors

Abstract

10.1 Valuation of internet companies

10.2 Valuation of financial institutions

10.3 Valuation of biotechnology companies

10.4 Valuation of real estate and construction sectors

10.5 Valuation of oil companies

References

11. Valuation issues

Abstract

11.1 Valuation of closely held or private companies

11.2 Valuing firms with negative earnings

11.3 Valuing cyclical firms

11.4 Valuing startup firms

11.5 Valuing multibusiness firms

11.6 Valuation in emerging markets

11.7 Valuing high growth companies

11.8 Errors in valuation

References

Part II: Case Studies on Valuation

12. Valuation of Walmart

Abstract

12.1 Financial highlights

12.2 Equity value creation

12.3 Ratio analysis

12.4 Standardized income statements of Walmart

12.5 Valuation of Walmart

12.6 Discounted cash flow valuation

12.7 Two stage FCFE model

12.8 Relative valuation

References

13. Valuation of Tata Motors

Abstract

13.1 Global industry trends

13.2 Business overview

13.3 Competitor analysis

13.4 Financial performance analysis

13.5 Wealth creation in stock market

13.6 Ratio analysis

13.7 Estimation of cost of equity and WACC

13.8 Valuation of Tata Motors

13.9 Valuation using dividend discount models

13.10 FCFE valuation

13.11 Stable stage or constant growth model

13.12 Valuation using FCFF model

13.13 Relative valuation (Tables 13.16–13.18)

References

14. Valuation of Samsung Electronics

Abstract

14.1 Strategies for growth

14.2 Growth trend analysis

14.3 Ratio analysis (Tables 14.6–14.12)

14.4 Stock market wealth creation (Tables 14.13 and 14.14)

14.5 Discounted cash flow valuation

14.6 Estimation of cost of equity and cost of capital

14.7 Dividend discount model

14.8 Constant growth DDM

14.9 FCFE valuation

14.10 Estimation of adjusted net capital expenditure (Table 14.19)

14.11 Estimation of noncash working capital in millions of krw

14.12 Estimation of two stage FCFE valuation

14.13 Constant growth FCFE model

14.14 Zero growth FCFE model

14.15 FCFF valuation model (Tables 14.24 and 14.25)

14.16 Two stage FCFF valuation model

14.17 Stable phase inputs

14.18 FCFF one stage growth model

14.19 FCFF zero growth model

14.20 Relative valuation

15. Valuation of Industrial and Commercial Bank of China (ICBC)

Abstract

15.1 Business segments

15.2 Strategy

15.3 Growth analysis (Tables 15.2–15.13)

15.4 Stock market wealth creation (Tables 15.14–15.16)

15.5 Valuation of ICBC

15.6 DDM

15.7 Relative valuation (Tables 15.18–15.26)

References

16. Valuation of Gazprom

Abstract

16.1 Growth rate analysis (Table 16.4)

16.2 Ratio analysis (Tables 16.5–16.9)

16.3 Stock wealth creation (Tables 16.10 and 16.11)

16.4 Estimation of cost of capital

16.5 WACC estimation

16.6 Valuation using discounted cash flow valuation

16.7 FCFE valuation

16.8 Relative valuation

References

17. Valuation of Singapore airlines

Abstract

17.1 Growth rate analysis (Tables 17.10–17.12)

17.2 Ratio analysis (Tables 17.13–17.16)

17.3 Stock wealth creation

17.4 Excess value added (Table 17.18)

17.5 Estimation of cost of capital

17.6 Valuation models

17.7 Stable stage dividend discount model

17.8 Stable stage FCFE and FCFF models

17.9 Estimation of FCFE in year 2014

17.10 Estimation of FCFF

17.11 Relative valuation (Tables 17.19 and 17.20)

17.12 Enterprise value multiples

Reference

18. Wells Fargo

Abstract

18.1 Current financial highlights

18.2 Financial highlights

18.3 Growth analysis (Tables 18.4 and 18.5)

18.4 Stock wealth creation

18.5 Dividend discount model

18.6 Estimation of growth rate from fundamentals (Table 18.11)

18.7 Relative valuation (Tables 18.13–18.15)

References

19. Valuation of China life insurance

Abstract

19.1 Financial highlights

19.2 Solvency ratio

19.3 Gross written premium

19.4 Analysis of cash flows

19.5 Estimation of embedded value

19.6 Stock return analysis

19.7 Estimation of cost of equity

19.8 Discounted cash flow model

19.9 Relative valuation

References

20. Valuation of Franklin resources

Abstract

20.1 Types of SIPs

20.2 Types of investment management and related services

20.3 Investment products

20.4 Stock wealth creation

20.5 Estimation of cost of equity

20.6 Valuation

20.7 Stable phase inputs

20.8 Relative valuation

References

21. Valuation of Pfizer

Abstract

21.1 Growth perspective of Pfizer

21.2 Performance analysis

21.3 Stock wealth creation

21.4 Estimation of cost of equity and WACC

21.5 Valuation models

21.6 Relative valuation

Reference

Part III: Case Studies on Mergers and Acquisition Valuation

22. Google’s acquisition of Motorola—a valuation perspective

Abstract

22.1 Introduction

22.2 Merger highlights

22.3 Strategic reasons for the acquisition

22.4 Financial breakdown of Motorola deal

22.5 Valuation perspectives

22.6 Returns analysis for different time windows of acquisition announcement

22.7 Cumulative abnormal return analysis

22.8 Valuation—operating performance analysis

22.9 Two-stage valuation model for Motorola Mobility (Figure 22.10, Table 22.5)

22.10 Zero growth or perpetuity model valuation for Motorola

22.11 Relative valuation for Google Inc.

22.12 Cash flow to market value model

Appendix 1: Cumulative returns for Google Inc.

Appendix 2: Cumulative returns for Motorola Mobility Holdings

Appendix 3: Cumulative abnormal returns (CAR) for Google Inc.

Appendix 4: Cumulative abnormal returns (CAR) for Motorola Mobility Holdings

References

23. HP Compaq merger—valuation

Abstract

23.1 Industry overview

23.2 Company highlights

23.3 Merger highlights

23.4 Expected synergies

23.5 Impact of merger announcement on wealth creation

Reference

24. Tata’s acquisition of Corus—a valuation analysis

Abstract

24.1 Highlights of Corus

24.2 Highlights of Tata Steel

24.3 The bidding war

24.4 Market reaction during the acquisition process

24.5 Strategic reasons for the acquisition

24.6 Valuation perspective