CP 1 module Flashcards
Value shaping factors (Rappaport)
1.period of value growth
2.sales growth rate
3.operating profit margin
4.additional investments in fixed assets
5.Additional investments in working capital
6.Income tax rate
7.Cost of capital
period of value growth
the number of years during which an investment provides growth
exceeding the cost of capital
cost of capital
minimum rate of return(revenue) that a company must earn before generating value(profit)
sales growth rate
results from the analysis of the product and its market share. Examining
the sales growth rate answer the question whether there are opportunities for further
development or entering new market areas.
Operating profit margin
Operating profit margin is a crucial financial ratio that measures a company’s profitability from its core operations. It indicates how much profit a company generates from each dollar of revenue it earns.
OPM=(Gross profit/Revenue)*100%
Additional investments in fixed assets
gives the opportunity to increase sales. They are
defined as the excess of capital expenditures over depreciation and amortization;
(upgrading equipment, buying new technology)
Additional investments in working capital
Additional investments in working capital refer to the allocation of funds to increase a company’s current assets, which are used to finance its day-to-day operations.
Income tax rate
can reduce future CF
financial Determinants of value creation
Sales growth rate
Operating profit margin
Income tax rate
Investments in working capital
Investments in fixed assets
Cost of capital…
Non-financial Determinants of value creation
Innovation
Quality
Customer Relations
Management
Alliances
Technology
Brand Value
Employee relations
Public relations
Attitude towards the environment
Oriented on a company’s historical data
asset-based approach
used to value falling companies and natural resource companies
asset-based approach
Oriented on a company’s future potential(Free cash flow to equity, Free cash flow to firm, Economic value added, Adjusted present value, Dividend discount model)
Income based approach(discounted CF model)
it’s complex and requires a sensitivity analysis
Income based approach (discounted CF model)
Requires to predict company’s incomes and cost of equity/capital
Income based approach (discounted CF model)
used to value mature growing concerns companies and start ups
Income based approach (discounted CF model)
It’s the most complex (real option pricing model)
Option based approach (contingent claim model)
For it income based methods is a starting point
Option based approach (contingent claim model)
Used to value natural resource companies (gas, oil)
Option based approach (contingent claim model)
Requires to find peer companies and to know less transaction prices of pure companies or their fundamentals
Market based approach
Sensitive to different accounting systems and rules
Market based approach
can overvaluate during bull market (growth in stock prices) and undervaluate during bear market(decline of stock prices)
Market based approach
Used the value companies from finance industry
Market based approach
Requires to separate data for every business part which is going to be evaluated
A Mixture Of the single valuation methods (Asset based, income based, option based, market based)
Can skip the synergy effect(combining two or more elements produces a more significant effect than they would have individually.)
A Mixture Of the single valuation methods (Asset based, income based, option based, market based)
a special case of the sum of the sum-of-the-parts valuation is a relative valuation, which peer group is divided in a view of company’s sectors, valued as a separate elements, and then summed up
A Mixture Of the single valuation methods (Asset based, income based, option based, market based)
Used to value complex corporations operating at the same time in many different industries
A Mixture Of the single valuation methods (Asset based, income based, option based, market based)
