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Equity valuation: models from leading investment banks

Author: Viebig, Jan ; Poddig, Thorsten ; Varmaz, Armin Series: Wiley finance series Publisher: Wiley, 2008.Language: EnglishDescription: 409 p. : Graphs/Ill. ; 25 cm.ISBN: 9780470031490Type of document: BookBibliography/Index: Includes bibliographical references and index
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Item type Current location Collection Call number Status Date due Barcode Item holds
Book Europe Campus
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Print HG4661 .E78 2008
(Browse shelf)
001246650
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Includes bibliographical references and index

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Equity Valuation Models from Leading Investment Banks Contents Foreword Preface Acknowledgments Abbreviations xiii xvii xxiii xxv 1 Part I Discounted Cash Flow (DCF) Models Jan Viebig and Thorsten Poddig 1 Introduction 2 The Fundamental Value of Stocks and Bonds 3 Discounted Cash Flow Models: The Main Input Factors 3.1 Analytical balance sheets and free cash flow discount models 3.2 The dividend discount model 3.3 The free cash flow to the firm (FCFF) model 3.3.1 Stirling Homex: why cash is king! 3.3.2 FCFF during the competitive advantage period 3.3.3 Weighted average cost of capital (WACC) 3.3.4 Terminal value calculation References 3 5 11 11 14 21 21 27 35 45 49 Part II Monte Carlo Free Cash Flow to the Firm (MC-FCFF) Models (Deutsche Bank/DWS) Jan Viebig and Thorsten Poddig 4 Introduction 5 Standard FCFF Model 5.1 Net revenues 5.2 Cost structure and operating income 53 55 57 59 63 5.3 5.4 5.5 5.6 Reconciling operating income to FCFF The financial value driver approach Fundamental enterprise value and market value Baidu's share price performance 2005-2007 66 71 76 79 85 85 88 88 98 103 105 6 Monte Carlo FCFF Models 6.1 Monte Carlo simulation: the idea 6.2 Monte Carlo simulation with @Risk 6.2.1 Monte Carlo simulation with one stochastic variable 6.2.2 Monte Carlo simulation with several stochastic variables 6.3 Disclaimer References Part III Beyond Earnings: A User's Guide to Excess Return Models and the HOLT CFROI® Framework Tom Larsen and David Holland 7 Introduction 8 From Accounting to Economics ­ Part I 9 From Economics to Valuation ­ Part I 10 Where Does Accounting Go Wrong? 11 From Accounting to Economics: CFROI 11.1 The basics 11.1.1 Return on net assets (RONA) or return on invested capital (ROIC) 11.1.2 Return on gross investment (ROGI) 11.1.3 Cash flow return on investment (CFROI) 11.2 CFROI adjustments using Vodafone's March 2005 annual report 11.2.1 Gross investment 11.2.2 Non-depreciating assets 11.2.3 Project life 11.2.4 Gross cash flow 11.3 CFROI calculation for Vodafone 11.4 A comment on goodwill 12 From Accounting to Economics: Economic Profit 12.1 The basics 12.2 Caveats 12.3 EP adjustments using Vodafone March 2005 annual report 12.3.1 Balance Sheet 12.3.2 Net operating profit after tax (NOPAT) 12.3.3 Economic profit 12.3.4 EP or CFROI? 107 109 113 115 117 119 119 120 121 121 123 123 131 135 137 140 141 145 145 147 148 148 153 153 154 13 From Economics to Valuation ­ Part II 13.1 General rules 13.2 Market value added 13.3 CFROI 13.4 A word on debt 13.5 Valuation 13.5.1 CFROI valuation: general framework 13.5.2 Understanding project returns 13.5.3 The residual period 13.5.4 CFROI residual period approach 13.5.5 Economic profit valuation: general framework 13.6 Valuation of Vodafone 13.7 EP or CFROI? 13.8 A final word Appendix 1: Vodafone Financial Statements and Relevant Notes for CFROI Calculation Appendix 2: Additional Notes from Vodafone Annual Report for EP Calculation References 157 157 157 157 158 159 159 159 161 164 165 167 171 173 175 185 191 Part IV Morgan Stanley ModelWare's Approach to Intrinsic Value: Focusing on Risk-Reward Trade-offs Trevor S. Harris, Juliet Estridge and Doron Nissim 14 Introduction 15 Linking Fundamental Analysis to the Inputs of the Valuation Model 16 Our Valuation Framework 17 Linking Business Activity to Intrinsic Value: The ModelWare Profitability Tree 18 ModelWare's Intrinsic Value Approach 19 Treatment of Key Inputs 20 The Cost of Capital 20.1 Risk-free rate 20.2 Equity risk premium 20.3 Beta-estimation 21 Summary and Conclusions Appendix References 193 195 199 203 211 219 231 233 233 234 234 237 239 251 Part V UBS VCAM and EGQ Regression-based Valuation David Bianco 22 Introducing "EGQ" -- Where Intrinsic Methods and Empirical Techniques Meet 23 A Quick Guide to DCF and Economic Profit Analysis 23.1 Powerful analytical frameworks, but not a complete solution 23.2 Dynamics of economic profit analysis 23.3 "Unadulterated EVA" 23.4 Value dynamic 1: ROIC 23.5 Value dynamic 2: invested capital 23.6 Value dynamic 3: WACC 23.7 Value dynamic 4: the value creation horizon 23.8 Combining all four value dynamics: EGQ 23.8.1 EGQ vs. PVGO 23.8.2 The search for the ultimate valuation methodology 24 Regression-based Valuation 25 UBS Economic Growth Quotient 25.1 The EGQ calculation 25.2 EGQ special attributes 25.2.1 A complete metric 25.2.2 Not influenced by the current capital base 25.2.3 Limited sensitivity to the assumed cost of capital 25.2.4 Comparable across companies of different size 25.2.5 Explains observed multiples on flows like earnings or cash flow 26 UBS EGQ Regression Valuation 26.1 Intrinsic meets relative valuation 26.2 EGQ regressions: relative valuation theater 26.3 EGQ regressions: a layered alpha framework 26.4 Y-intercept indicates cost of capital 26.5 Slope vs. Y-intercept indicates style 26.6 Emergent valuation 26.7 Why regress EGQ vs. EV/NOPAT? 26.8 Think opposite when under the X-axis 27 Understanding Regressions 27.1 Key takeaways 27.2 The line -- what is the relationship? 27.2.1 Slope (beta) 27.2.2 y-intercept (alpha) 27.3 The explanatory power or strength of the relationship 27.3.1 Correlation coefficient (R) 27.3.2 Coefficient of determination (R-squared) 253 255 257 257 257 258 258 259 260 261 261 261 262 263 265 265 265 265 265 266 266 267 269 269 270 271 271 271 272 272 273 275 275 276 276 277 277 277 277 27.4 Reliability or confidence in the quantified relationship 27.4.1 Standard error (of beta) 27.4.2 t-Statistic 27.5 Regression outliers 27.5.1 Influence outliers 27.5.2 Leverage outliers 27.6 Beware of outliers in EGQ regressions 28 Appendix Discussions 28.1 EGQ's muted sensitivity to assumed WACC 28.2 EV/IC vs. ROIC/WACC regressions 28.3 PE vs. EPS growth regressions or PEG ratios 28.4 Return metrics: ROIC vs. CFROI 28.5 Accrual vs. cash flow return measures 28.6 ROIC vs. CFROI 28.7 Adjusting invested capital important, but not for EGQ References 278 278 278 278 278 278 279 281 281. 282 284 285 286 286 288 291 293 Part VI Leverage Buyout (LBO) Models Jan Viebig, Daniel Stillit and Thorsten Poddig 29 Introduction 30 Leveraged Buyouts 31 IRRs and the Structure of LBO Models 32 Assumptions of LBO Models 33 Example: Continental AG 33.1 Background 33.2 LBO modeling approach ­ appropriate level of detail 33.3 Key LBO parameters 33.4 Step-by-step walk through the model 34 A Word of Caution References 295 297 301 307 317 317 318 318 320 329 333 335 Part VII Valuation 101: Approaches and Alternatives Aswath Damodaran 35 Introduction 36 Overview of Valuation 37 Discounted Cash Flow Valuation 37.1 Essence of discounted cashflow valuation 337 339 341 341 37.2 Discount rate adjustment models 37.2.1 Equity DCF models 37.2.2 Firm DCF models 37.3 Certainty equivalent models 37.4 Excess return models 37.5 Adjusted present value models 37.6 Value enhancement in the DCF world 37.6.1 Determinants of value 37.6.2 Ways of increasing value 38 Liquidation and Accounting Valuation 38.1 Book value-based valuation 38.1.1 Book value 38.1.2 Book value plus earnings 38.1.3 Fair value accounting 38.2 Liquidation valuation 38.3 Value enhancement in the accounting world 39 Relative Valuation 39.1 Steps in relative valuation 39.2 Basis for approach 39.3 Standardized values and multiples 39.4 Determinants of multiples 39.5 Comparable firms 39.6 Controlling for differences across firms 39.7 Value enhancement in the relative valuation world 40 Real Option Valuation 40.1 Basis for approach 40.2 The essence of real options 40.3 Examples of real options 40.4 Value enhancement in the real options world 41 Closing Thoughts on Value Enhancement References 341 343 344 345 346 346 347 347 349 355 355 356 356 357 358 358 361 361 361 362 363 365 365 366 369 369 370 371 372 375 377 379 Part VIII Final Thoughts on Valuation Armin Varmaz, Thorsten Poddig and Jan Viebig 42 Introduction 43 Valuation in Theory: The Valuation of a Single Asset 43.1 Certain cash flows 43.2 Uncertain cash flows 43.3 Risk premia 381 383 383 384 386 43.4 43.5 Certainty equivalents and utility-based valuation Risk neutral probabilities 388 391 395 399 401 403 44 Outlook: The Multi-asset Valuation and Allocation Case 45 Summary References Index

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