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What’s the point of valuation? WHY do you value a company?
But public companies already have Market Caps and Share Prices. Why bother valuing them?
What are the advantages and disadvantages of the 3 main valuation methodologies?
Which of the 3 main methodologies will produce the highest Implied Values?
When is a DCF more useful than Public Comps or Precedent Transactions?
When are Public Comps or Precedent Transactions more useful than the DCF?
Which one should be worth more: A $500 million EBITDA healthcare company or a $500 million EBITDA industrials company? Assume the growth rates, margins, and all other financial stats are the same.
How do you value an apple tree?
People say that the DCF is an intrinsic valuation methodology, while Public Comps and Precedent Transactions are relative valuation. Is that correct?
Why do you build a DCF analysis to value a company?
Walk me through a DCF analysis.
How do you move from Revenue to Free Cash Flow in a DCF?
What does the Discount Rate mean?
How do you calculate Terminal Value in a DCF, and which method is best?
What are some signs that you might be using the incorrect assumptions in a DCF?
If your DCF seems off, what are the easiest ways to fix it?
How do you interpret the results of a DCF?
Does a DCF ever make sense for a company with negative cash flows?
How do the Levered DCF Analysis and Adjusted Present Value (APV) Analysis differ from the Unlevered DCF?
Will you get the same results from an Unlevered DCF and a Levered DCF?
Why do you typically use the Unlevered DCF rather than the Levered DCF or APV Analysis?
Why do you calculate Unlevered Free Cash Flow by including and excluding various items on the financial statements?
How does the Change in Working Capital affect Free Cash Flow, and what does it tell you about a company’s business model?
Should you add back Stock-Based Compensation to calculate Free Cash Flow? It’s a non-cash add-back on the Cash Flow Statement.
What’s the proper tax rate to use when calculating FCF – the effective tax rate, the statutory tax rate, or the cash tax rate?
How should CapEx and Depreciation change within the explicit forecast period?
Should you reflect inflation in the FCF projections?
If the company’s capital structure is expected to change, how do you reflect it in FCF?
What’s the relationship between including an income or expense line item in FCF and the Implied Equity Value calculation at the end of the DCF?
How do Net Operating Losses (NOLs) factor into Free Cash Flow?
How does the Pension Expense factor into Free Cash Flow?
Should you ever include items such as asset sales, impairments, or acquisitions in FCF?
What does the Cost of Equity mean intuitively?
What does WACC mean intuitively?
How do you calculate Cost of Equity?
If a company operates in the EU, U.S., and U.K., what should you use for its Risk-Free Rate?
What should you use for the Risk-Free Rate if government bonds in the country are NOT risk-free (e.g., Greece)?
How do you calculate the Equity Risk Premium?
How do you calculate the Equity Risk Premium for a multinational company that operates in many different geographies?
What does Beta mean intuitively?
Could Beta ever be negative?
Why do you have to un-lever and re-lever Beta when calculating the Cost of Equity?
Do you still un-lever and re-lever Beta even when you’re using Unlevered FCF?
What are some different ways to calculate Beta in the Cost of Equity calculation?
How do you calculate WACC, and what makes it tricky?
WACC reflects the company’s entire capital structure, so why do you pair it with Unlevered FCF? It’s not capital structure-neutral!
Should you use the company’s current capital structure or optimal capital structure to calculate WACC?
Should you use Total Debt or Net Debt to determine the capital structure percentages in the WACC calculation?
Why is Equity more expensive than Debt?
How does the Cost of Preferred Stock compare with the Costs of Debt and Equity?
How do you determine the Cost of Debt and Cost of Preferred Stock in the WACC calculation, and what do they mean?
How do convertible bonds factor into the WACC calculation?
How do the Cost of Equity, Cost of Debt, and WACC change as a company uses more Debt?
How do those figures change as the company uses less Debt?
If a company previously used 20% Debt and 80% Equity, but it just paid off all its Debt, how does that affect its WACC?
Should you ever use different Discount Rates for different years in a DCF?
What is the difference between the explicit forecast period and the Terminal Period in a DCF?
What’s the intuition behind the Gordon Growth formula for Terminal Value?
If you use the Multiples Method to calculate Terminal Value, do you use the multiples from the Public Comps or Precedent Transactions?
How do you pick the Terminal Growth Rate when you calculate the Terminal Value using the Gordon Growth Method?
Why do you need to discount the Terminal Value back to its Present Value?
When you discount the Terminal Value, why do you use the number of the last year in the forecast period for the discount period (for example, 10 for a 10-year forecast)? Shouldn’t you use 11 since Terminal Value represents the Present Value of cash flows starting in Year 11?
What do you do after summing the PV of Terminal Value and the PV of Free Cash Flows?
The diluted share count includes dilution from the company’s in-the-money options. But what about its out-of-the-money options? Shouldn’t you account for them in a DCF?
How can you check whether or not your Terminal Value estimate is reasonable?
What’s one problem with using EV / EBITDA multiples to calculate Terminal Value?
Would it ever make sense to use a negative Terminal FCF Growth Rate?
How can you determine which assumptions to analyze in sensitivity tables for a DCF?
Why do you use the mid-year convention in a DCF analysis?
What impact does the mid-year convention make?
Why might you include a “stub period” in a DCF, and what does it mean?
Why do you need to adjust the Terminal Value when you use the mid-year convention? Can’t you just discount it to Present Value using a different discount period?
Why might you create a “Normalized Terminal Year” in a DCF?
What impact does the Normalized Terminal Year make?
Which assumptions make the biggest impact on a DCF?
Should Cost of Equity and WACC be higher for a $5 billion or $500 million Equity Value company?
Would increasing the revenue growth from 9% to 10% or increasing the Discount Rate from 9% to 10% make a bigger impact on a DCF?
Would it make a bigger impact to increase revenue growth from 9% to 20%, or to increase the Discount Rate from 9% to 10%?
Two companies produce identical total Free Cash Flows over a 10-year period, but Company A generates 90% of its Free Cash Flow in the first year and 10% over the remaining 9 years. Company B generates the same amount of Free Cash Flow in every year. Which company will have the higher Implied Value in a DCF?
How does the tax rate affect the Cost of Equity, Cost of Debt, WACC, and the Implied Value from a DCF?
Can you walk me through how you use Public Comps and Precedent Transactions in a valuation?
Why is it important to select Public Comps and Precedent Transactions that are similar?
How do you select Comparable Companies and Precedent Transactions?
Are there any screens you should AVOID when selecting Comparable Companies and Precedent Transactions?
Can you walk me through the process of finding market and financial information for the Public Comps (without using CapIQ or tools as such)?
Can you walk me through the process of finding market and financial information for the Precedent Transactions?
How do you decide which metrics and multiples to use in these methodologies?
Why do you look at BOTH historical and projected metrics and multiples in these methodologies?
When you calculate forward multiples for the comparable companies, should you use each company’s Current Equity Value or Current Enterprise Value, or should you project them to get the Year 1 or Year 2 values?
What should you do if some companies in your set of Public Comps have fiscal years that end on June 30th and others have fiscal years that end on December 31st?
How do you interpret the Public Comps? What does it mean if the median multiples are above or below the ones of the company you’re valuing?
Is it valid to include both announced and closed deals in your set of Precedent Transactions?
Why do Precedent Transactions often result in more “random” data than Public Comps?
How do you factor in earn-outs and expected synergies in Precedent Transactions?
Are there any rules about filtering out deals for less than 100% of companies or about stock vs. cash deals in Precedent Transactions?
If there’s a Precedent Transaction where the buyer acquired 80% of the seller, how do you calculate the valuation multiples?
Why do you use median multiples rather than average multiples or other percentiles?
What is a Liquidation Valuation, and when is it useful and not so useful?
How does a Dividend Discount Model (DDM) differ from a DCF?
Why might you use an M&A Premiums analysis to value a company?
How do you build a Future Share Price Analysis?
What are the advantages and disadvantages of a Sum-of-the-Parts Valuation?
How do you set up an LBO valuation, and when is it useful?