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Valuing a Firm, Purpose of valuation matters, Weakness - Coggle Diagram
Valuing a Firm
- Discounted CF Method*
Purpose: As a going concern
- Find DCF from Op for n years
Net Income
add Depreciation /NCE
add (1 – t) Int. Exp.
± Δ in NWC
± Capital Expd.
- Find K by Computing WACC
WACC = We (Ke) + Wd (1-t)(Kd)
- Find Terminal Value (TV)
Take the last Projected Year’s CF for OP
Div. by k – g
Add to last Years CF from O
- Find Total PV of CFs
By discounting each Year’s CF by “K”
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- Determine Intrinsic value of firm
Deducting (5) from (4)
- Determine Intrinsic value per share
Divide IV of firm by total number of Shares Outstanding.
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- Net Tangible Asset (NTA) valuation
Purpose: liquidation
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- P/E Multiple - Malaysian IPO
Purpose: As a going concern but in comparison with DCF method
- Sales Multiple method
Purpose: As a going concern but in comparison with DCF method
- Last done /Recent transaction method
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Weakness
Net Tangible Asset
Company Depreciation policy
over/under valuation of assets
also ignores potential growth *
P/E Multiple
Depends on market condition
Accounting policy in reporting earnings🡪 EPS
Sales/Earnings Multiple Method 🡪 Depends on timing
Bullish times Sales Multiple are high