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Discounted Cash Flow (DCF) Valuation

Participants learn how to build a discounted cash flow valuation model. The session starts with an overview of the valuation methodology, and the steps required in setting up a valuation model. We then focus on the calculation of free cash flow. A detailed ratio analysis is used to establish the reasonableness of the forecasts and to identify when the target company reaches steady state. We analyze the weighted average cost of capital, calculate terminal values, using both the exit multiple method and the perpetuity growth method. We discount the free cash flows to arrive at enterprise values and calculate the implied share price. Once the valuation is complete participants perform several checks on the analysis using key ratios, and sensitivity and scenario analysis.

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Description

Participants learn how to build a discounted cash flow valuation model. The session starts with an overview of the valuation methodology, and the steps required in setting up a valuation model. We then focus on the calculation of free cash flow. A detailed ratio analysis is used to establish the reasonableness of the forecasts and to identify when the target company reaches steady state. We analyze the weighted average cost of capital, calculate terminal values, using both the exit multiple method and the perpetuity growth method. We discount the free cash flows to arrive at enterprise values and calculate the implied share price. Once the valuation is complete participants perform several checks on the analysis using key ratios, and sensitivity and scenario analysis.

Key topics:

  • Calculating unlevered free cash flows

­    Drivers of cash flow

­    Ratio analysis

  • Weighted average cost of capital

­    Optimal capital structure using peer analysis

­    Establishing the company’s forward looking cost of debt

­    Cost of equity: understanding the risk free rate, the equity risk premium and beta

­    Unlevering and relevering the beta

­    Calculating WACC for the case company

  • Calculating the terminal value

­    Perpetuity growth (Gordon Growth model) method

­    Exit multiple method

  • Building a discounting model

­    Mid-year adjustments

  • Calculating enterprise and equity values
  • Sanity checks

­    Reinvestment rate and ROIC

­    Implied multiples and growth rates

­    Percentage of value in the terminal period

Prerequisites

This course is non-residential, the standard fee includes lunch and light refreshments.

Attendees should bring a Windows-based laptop to the training with Excel, Winzip and Adobe to access the files. Our teaching materials are designed for PCs and not MAC based systems.

AMT reserve the right to cancel or postpone sessions or change content if registrations are insufficient to continue 1 month prior to scheduled commencement date. Registrants will be given at least 20 business days’ notice of such changes.