Other Valuation Methodologies Flashcards
What is a Liquidation Valuation, and when is it useful and not so useful?
In a Liquidation Valuation, you can value a company by determining the market values of all its assets, adding them up, and subtracting the market values of all its Liabilities.
How does a Dividend Discount Model (DDM) differ from a DCF?
In a DDM, rather than projecting Free Cash Flow, you project the company’s Dividends, usually based on a percentage of Net Income. You then discount the Dividends to their Present Value using the cost of equity and add them up.
Why might you use an M&A Premiums analysis to value a company?
The M&A Premiums Analysis applied only to public companies because you look at acquisitions of similar public companies and calculate the “premium” each buyer paid for each seller.
What are the advantages and disadvantages of a Sum-of-the-parts valuation?
Works well for conglomerates like GE
Takes far more time and effort to set up because you have to find comparable companies and transactions for each division, build a separate DCF for each division, and so on.
What is an LBO Valuation and when is it useful?
You set up the LBO valuation by creating a leveraged buyout model where a private equity firm acquires a company for a certain price, using Debt & Equity, holds it for several years, and then sells it for a certain multiple of EBITDA.
Since most private equity firms target an internal rate of return (IRR) in a specific range, you work backward and determine the purchase price required to achieve this IRR.
