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Finance / Accounting - Business Valuation

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A comparison of dividend, cash flow, and earnings approaches to equity valuation	This paper contrasts dividend discount techniques, discounted cash flow analysis, and techniques based on accrual earnings when applied to a finite-horizon valuation.
A Strategic Evaluation of the Effects of International Diversification on Firm Value	This paper sets out to establish whether a strategy of internationalisation will lead to an increase in the value of a company. Pdf-file 2000
All P/Es are not created equal	High price-to-earnings ratios are about more than just growth. Understanding the ingredients that go into a strong multiple can help executives make the most of this strategic tool. Pdf-file 338 KB. 2004
Common Errors in Business Valuation Reports Revisited	In this article, we will discuss the evolution of business valuation, common errors in valuation reports and the Tax Court's current views.
Company Valuation Methods	Short introduction into different methods for company valuation. Pdf-file
Consistency in Valuation: A Practical Guide	Practitioners very easily break some consistency rules when doing a valuation of assets. In this short and simple note the authors present a practical guide to call the attention upon the most frequent broken consistency rules.
Cost of Capital Approach and Adjusted Present Value Approach	This book chapter develops an approach to valuation where the entire firm is valued, by either discounting the cumulated cashflows to all claim holders in the firm by the weighted average cost of capital (the cost of capital approach) or by adding the marginal impact of debt on value to the unlevered firm value (adjusted present value approach). pdf
Economic Value Added Model	Using of the Economic Value Added Model for Valuation of a Company. Pdf-file
Empirical Testing of Unified Valuation Theory	It has been a long-held belief by many appraisers that small businesses sell very differently than large businesses, that the rules of the game are totally different. This article shows why that is not true. Pdf-file
Equity valuation	A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity Valuation, by Theodore Sougiannis and Stephen H. Penman
Firm Valuation: Free Cash Flow or Cash Flow to Equity?	In this paper the relationship between firm value calculated through the FCF and the CFE (cash flow to equity) is examined. Several approaches to the firm value calculations are presented.
Firm Value	Taxes, Financing Decisions and Firm Value, by Eugene F. Fama and Kenneth R. French
Free Cash Flow and Discounted Cash Flow Approaches - A Monte Carlo Comparison	One of the debates in the capital budgeting model selection is between the free cash flow and DCF methods. In this paper an attempt is made to compare SVA against NPV model based on Monte Carlo simulations. Accordingly, NPV is found less sensitive to value driver variations and has got higher forecast errors as compared to SVA model. pdf-file 2002
Free Cash Flow vs. Capital Cash Flow	A comparison. Pdf-file
Glossary	of business valuation terms. Pdf-file
Glossary	International Glossary of Business Valuation Terms. Pdf-file
How to find value when none exists: pitfalls in using APV and FTE	This paper looks at three different methods for valuing firms and projects: the traditional weighted average cost of capital, the flows to equity method and a new challenger the adjusted present value model. Pdf-file
How to Use Transactional Databases for M&A	This informative article includes a checklist for using transaction databases for pricing and valuation, as well as several instructive exhibits. Pdf-file
Is business appraising for you?	Skills needed for business valuation, seen from a CPAs view
New Developments in Valuation	An interview with Tom Copeland. Pdf-file 491 KB
Overview	An overview on business valuation and the process in FAQ format
Quantitative Marketability Discount Model	The following method, from an outspoken and creative valuation professional, adds much to the current discussion and experimentation in the world of valuations. Although considered controversial by some, the methodology below introduces new and valuable ideas and may stimulate others to take business valuation techniques to the next level.
Rules of Thumb	These rules are nothing more than a rough starting point. Unfortunately, these rules have found their way into the valuation profession and are being used by inexperienced valuators in tax and litigation cases, principally due to their simplicity and ease of use.
Teaching Corporate Finance by Valuing a Corporation	This paper describes a firm valuation project that may be incorporated into a second course in finance. Pdf-file 1999
The Capital Asset Pricing Model	Equity Risk Premiums and the Privately held Business. Pdf-file
The real cost of equity	The inflation-adjusted cost of equity has been remarkably stable for 40 years, implying a current equity risk premium of 3.5 to 4 percent. Pdf-file 114 KB. 2002
The right role for multiples in valuation	A properly executed multiples analysis can make financial forecasts more accurate. Pdf-file 2005 (article starts on page 7 / page nine of the document)
Thoughts on Valuation	My objective today is to walk through, very logically, why we think value-based analysis is a powerful tool for both investors and the corporations. We’ll approach the issue in three different ways. First, we’ll talk about stock market myths and stock market reality. Next, we will evaluate valuation techniques, weighing the pluses and minuses of each. Finally, we will lay out the case for a value-based model. pdf-file
Thoughts On Valuation II	An Epistemological View. pdf-file · What is the central role of valuation? · What can we say, and not say, about the certainty of the valuation process? · What analogies can help us understand how the market sets price? · What does empirical evidence tell us? · Why isn’t the theory accepted in practice?
Using Multiples for Valuation	Lecture notes on the multiples method. Pdf-file
Valuation of IPO and SEO Firms	This article examines the pricing of initial public offering (IPO) and seasoned equity offering (SEO) firms using a stochastic frontier methodology. Pdf-file 369 KB
Valuation Techniques	Book chapter: This is a how-to-do-it chapter. In the first section, we explain and derive the after-tax WACC and use it to value a project and business. Then in Section 19.2 we work through a more complex and realistic valuation problem. …	Top
Value intangibles!	Intangible capital can and must be valued – owners and valuers alike will benefit. pdf-file
Valuing Cyclical Companies	Cyclical stocks such as airlines and steel can appear to defy valuation. But an approach based on probability will help managers and investors draw up a reasonable estimate. Pdf-file 2000
Valuing dot-coms after the fall	Last year's fall reminds us that stock prices eventually reflect a company's fundamental economic performance. Here are the key questions to ask. Pdf-file 65 KB, August 2001
When Tangible Assets Lose Their Value	Today’s market demands lower-priced alternatives to arrive at the value of tangible personal property. Two practices in use within the appraisal profession that have responded to this demand are 1) net book value (NBV) equals fair market value (FMV) and 2) trend and depreciate historical property records. The question is whether these lower-cost practices can still provide a reasonable grasp of the asset values in question. 2004

Discounts and Premiums

Control Premium	Application of Control Premiums under the Fair Value Standard. Pdf-file. 2003
Control Premiums And Minority Discounts	All shares are equal, but some are more equal than others, to borrow from George Orwell. Are the shares of controlling stockholders worth more per share than the shares of the minority? The answer, as will be seen below, is, it all depends.
Marketability Discounts and Risk in Transactions Prior to Initial Public Offerings	It is generally accepted that marketability has value and that stocks lacking marketability are worth less than marketable shares. Studies of private transactions of unlisted securities prior to initial public offerings (IPO's) provide evidence of discount for lack of marketability.
Minority Discounts and Control Premiums	When Do They Apply? Pdf-file
Minority Stock	Why Is the Value of Minority Stock Discounted So Heavily? Pdf-file
Source of Control Premium Data & What it Doesn't Tell Us	Business appraisers frequently employ the term control premium when valuing a whole company. The concept arises from the observation that merger and acquisition transactions involving whole public companies (or majority ownership positions) tend to occur at premiums to pre-merger share prices paid in the public exchanges for minority blocks of the stock of the acquired companies.
The Marketability Discount	Academic Research in Perspective  - The Hertzel/Smith Study. 2003
Valuation Premiums and Discounts	pdf-file. 2001

Discounted Cash Flow (DCF) Valuation

25 Questions on DCF valuation	Every valuation analyst has faced one or more of these questions in real world valuations and has had to come up with an answer. These are my very opinionated (and not necessarily correct) answers to the 25 top questions that we face in DCF valuation. Take it for a spin!
Capital Cash Flows	Capital Cash Flows: A simple Approach to valuing risky Cash Flows, by Richard S. Ruback
Forecasting Cash Flow: Mathematics of the Payout Ratio	The main purpose of this article is to provide the mathematics that will simplify the mechanics of forecasting cash flow in many situations, thus making the DCF easier to do and reducing the temptation to take the shortcuts that lead to overvaluations. pdf-file
Free Cash Flow - Firm Valuation	Free Cash Flow or Cash Flow to Equity? Pdf-file
Free Cash Flow to Equity Discount Models	This book chapter uses a more expansive definition of cashflows to equity as the cashflows left over after meeting all financial obligations. It discusses the reasons for differences between dividends and free cash flows to equity, and presents the discounted free cashflow to equity model for valuation. pdf-file
Free Cash Flow, EVA, and NPV	Free Cash Flow (FCF), Economic Value Added (EVA ), and Net Present Value(NPV): A Reconciliation of Variations of Discounted-Cash-Flow (DCF) Valuation. Pdf-file
Investment Valuation	This is the entire second edition of the book by Aswath Damodaran from the Stern School of Business.	TOP

Cost of Capital / Weighted Average Cost of Capital (WACC)

Cost of Capital Approach and Adjusted Present Value Approach	This book chapter develops an approach to valuation where the entire firm is valued, by either discounting the cumulated cashflows to all claim holders in the firm by the weighted average cost of capital (the cost of capital approach) or by adding the marginal impact of debt on value to the unlevered firm value (adjusted present value approach). pdf
Method and Formula	Brief description
Method and Formula II	Not so brief description
Method and Formula III	In-depth description	TOP
The Cost of Debt	This paper proposes a practical way of estimating the cost of risky debt for use in the cost of capital. Pdf-file

Related Information
Knowledgebase - Marketing - Branding - Brand Valuation

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Publications at www.themanager.org

Electronic Spreadsheets: The Good, the Bad & the Ugly
Rick Hesse, DSc, Chair and Professor of Decision Sciences
On the 25th anniversary of the development of electronic spreadsheets, the good news is that spreadsheets have had a positive impact on the way businesses operate behind the scenes—from finance and accounting to operations and marketing and human resources—and they save time. The bad news is that training is woefully inadequate and haphazard. The ugly news is that spreadsheets are full of errors, with a majority of firms using them in some way for financial reporting that falls under the Sarbanes Oxley act.  ... more

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Literature

More literature recommendations:
>> themanager.org-Strategy-Bookstore
>> M&A >> Valuation / Financial Modelling

Valuation for M&A: Building Value in Private Companies
by Frank C. Evans, David M. Bishop
There is too much mystery about what companies are worth. The problem is especially acute in the case of a private company that lacks the guidance of a stock market price. Valuation for M&A lays out the steps for measuring and managing value creation in nonpublicly traded entities, and helps investors, executives, and their advisors determine the optimum strategy to enhance both market value and strategic value and maximize return on investment.

Valuation: Measuring and Managing the Value of Companies
by McKinsey & Company Inc., Tom Copeland, Tim Koller, Jack Murrin
The #1 guide to corporate valuation is now better than ever! Hailed by financial professionals worldwide as the single best guide of its kind, Valuation provides crucial insights into how to measure, manage, and maximize a company's value.

Investment Valuation: Tools and Techniques for Determining the Value of Any Asset
by Aswath Damodaran
Noted valuation authority and acclaimed NYU finance professor Aswath Damodaran uses real-world examples and the most current valuation tools, as he guides you through the theory and application of valuation models and highlights their strengths and weaknesses.

Valuation for Mergers, Buyouts, and Restructuring  
by Enrique R. Arzac
This book offers a unique combination of practical valuation techniques and the most current thinking to provide an up-to-date synthesis of valuation theory as it applies to mergers, buyouts, and restructuring.

What you also might need when doing a business valuation - Financial Modeling

Building Financial Models
by John Tjia
A Guide to Creating and Interpreting Financial Statements
This highly recommended book step-by-step process for creating a core model and then customizing it for companies in virtually any industry. Covering every aspect of building a financial model, it provides a broad understanding of the actual mechanics of models, as well as their foundational accounting and finance concepts.

Building Financial Models with Microsoft Excel: A Guide for Business Professionals
by K. Scott Proctor
A financial model is a quantitative representation of a company’s past, present, and future business operations. Companies of all types and sizes use financial models every day to analyze and plan their business activities. Financial models serve as the foundation and basis of standard financial accounting reports, including the balance sheet, the income statement, and the statement of cash flows. While many business professionals are familiar with the "output" of financial models, namely consolidated financial statements, few are truly adept at building an accurate and effective financial model from the ground up. Building Financial Models with Microsoft Excel addresses this real, immediate, and significant issue like no other book. Written in a straightforward and accessible manner, it is a comprehensive resource for business professionals with a beginner or intermediate level of experience in both Microsoft Excel and finance or accounting.

Financial Modeling Using Excel and VBA
by Chandan Sengupta
This book, designed for self-study, classroom use, and reference, presents a comprehensive approach to developing simple to sophisticated financial models in all major areas of finance. A companion CD includes all working versions of all the models presented in the book and additional useful reference material.
more about this book

The Oxford Guide to Financial Modeling: Applications for Capital Markets, Corporate Finance, Risk Management and Financial Institutions
by Thomas S. Y. Ho, Sang Bin Lee
The book presents the financial models of stock and bond options, exotic options, investment grade and high-yield bonds, convertible bonds, mortgage-backed securities, liabilities of financial institutions -- the business model and the corporate model. It also describes the applications of the models to corporate finance. Furthermore, it relates the models to financial statements, risk management for an enterprise, and asset/liability management with illiquid instruments.
more about this book