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Week 11 Equity Valuation
SEE THE IS/BS MODEL & FLOW DIAGRAM TABS -YOU ARE NO
READ:
VIDEOS:
CASE
CFW on Valuation, Chapter 6
The "Big Daddy" Valuation Formula
links to videos on Week 11 Bb page
A Swinging Attitude for Equity Valuation Success
Monmouth, Inc.
do not confuse Monmouth and Robertson Tool; examine titles of case exhib
Learning Objectives
- Apply financial analysis techniques learned so far to size-up a business
- Learn how to use and not abuse the Free Cash Flow Equity Valuation Model
- Learn how to use and not abuse the Market Multiples Equity Valuation Model
- Become aware of the proposition that "equity valuation is an opinion"
- Become aware that successful equity analysts know how to "swing it"
Assignment Questions
ANSWER IN THE TABS
1 Prepare a succinct statement describing Robertson Tool's business risk, making critical j
HINT: Consider the volatility of its revenues and operating expenses, therefore appraisin
based on the green color-coded parts of the IS-BS Model.
2 What does the Free Cash Flow Equity Valuation model on Q2 tab suggest about the valu
HINT: Note that Case Exhibit 4 provides data inputs for the FCF valuation.
3 What does the Market Multiples Valuation model on Q3 tab suggest about the value of M
HINT: Case Exhibit 6 provides data inputs for the MM valuation.
4 Considering all of the above, Q1-3, recommend and justify a price for this deal.
This is not easy to do. Put yourself in the shoes of the Robertson managers.
Who wants it more? The buyer-Monmouth? The seller-Robertson?
Who has the strongest negotiating position? Use case facts to guide you.
REMEMBER:
THERE IS NO SINGLE CORRECT ANSWER IN FINANCIAL ANALYSIS AND DECISION MAKING.
THE QUALITY OF YOUR WORK DEPENDS ON THE INTERPRETATION OF MODEL RESULTS
COMBINED WITH INFORMATION FROM THE CASE…
AND JUDGMENT. DON'T BE AFRAID TO EXERCISE YOUR JUDGMENT!
THUMBNAIL SKETCH:
BRIEF ANALYSIS
DUPONT RATIOS
HISTORICAL RATIOS
I/S & B/S FORECAST
TIE
NORMAL DEBT RATIOWORKING CAPITAL I/S, B/S, & RATIOS
STOCK PRICE
MKT CAP
EXTENDED ANALYSIS
FULL RATIOS
LIQUIDITY
LEVERAGE
ASSET USE
PROFITABILITY
VALUATION
GROWTH
CAPITAL BUDGETING
OP & CAP NATCF, NPV, IRR, PAYBACK
FINANCING
EFN
ANALYSIS STEPS:
1-HISTORICAL RATIOS
2-K-WACC
3-CAPITAL BUDGETING
4-FORECAST & EFN
5-EQUITY VALUATION
6-FINANCING
VALUATION
DEBT EQUITY
DEBT
EQUITY
EBIT CHART
income risk control mktblty flexblty timing
K-WACC
ENTERPRISE VALUE USING FREE CASH FLOW
MARKET MULTIPLES: P/E, MV/BV, REV, EBIT
INCOME STATEMENT
BALANCE SHEET
Revenue
ASSETS
LIABILITIES AND EQUITY
Cost of sales
Current assets
Current liabilities
Gross profit
Cash
Trade payables
Other operating income
Inve...