M4-S4 - Session notes - Revision history

Dirkjan at 19:59, 27 August 2020

2020-08-27T19:59:17Z

Dirkjan: Replaced content with "M4-S4 - Session notes Category:mbi"

2020-08-27T19:19:47Z

Replaced content with "M4-S4 - Session notes Category:mbi"

Dirkjan: Created page with "M4-S4 - Session audio: '''Valuation methods''' # Salvage valu..."

2020-08-25T08:03:05Z

Created page with "M4-S4 - Session audio: <html> <audio controls><source src="/static/files/MBI/Module%204/M4-S4.mp3"type ="audio/mp3"/></audio> </html> '''Valuation methods''' # Salvage valu..."

New page

M4-S4 - Session audio:

<html>
<audio controls><source src="/static/files/MBI/Module%204/M4-S4.mp3"type ="audio/mp3"/></audio>
</html>

'''Valuation methods'''
# Salvage value
# Current production
# Future (undiscounted) production
# Market price
# Book value
# Discounted future earnings
But in practice:
* Gut feel
* Competitive reference
* Growth rate
* Revenue
* [[Real Options|Real Options]]
* [[Discounted Cash Flow|Discounted Cash Flow]]
* Cost of creation of a product
* Cash Flow - Burn Rate

'''The story of the apple tree'''
A man has an apple tree that delivers him \$100,- per year in selling apples. Now he tries to sell the apple tree:
* The Lumber jack offers \$50,- for cutting it for wood
* The Grocer offered \$100,- for harvesting this year's crop
* The Marketer offers \$1499,- assuming the tree lives another 15 years
* The wealthy physician: ill pay the market price - whatever your last offer
* The young stock broker: capatilized earnings
** You did have expenses and did not make \$100,- but more like \$50,-
** I noticed an average of \$45,- earnings per year.
** I need to compare with other investment alternatives
** I am willing to pay a price that will give me 20% return.
** To figure out the price i'll divide \$45 by 0.2, so this is \$225,-
* The young stock broker revisited:
** Using discounted cash flow to compensate for the risk
** And using the 'end of life' value of the lumber jack
** The total offer become \$270,- and was taken for \$250,-

Morals of the story:

# Methods for valuation:
## '''Asset approach'''
### Salvage value
### Book value
## '''Income cash flow'''
### Current production
### Future (undiscounted) production
### Discounted future earnings
## '''Market (comparable) approach'''
### Price/Earnings ratio
### Market price
# Asset valuation methods and tools are useful but valuation is an art
# You should listen closely to the experts
## Focus on what they ''don't'' say (rather than say)

[[M4-S4 - DCF in a decision tree|DCF in a decision tree]] is a good way of visualising risk and opportunity.

'''Earning multiples'''
* Suitable for companies with establised financial history
* Price / Earnings ratio represents the value of the business divide by its post tax profits
* It may not be easy which ratio to use
* The P/E ratios used in financial press should be reduced significantly when valuing a small business
* Quite often business advisors use a factor between 5 and 10

<html>
<object width="425" height="344">
<param name="movie" value="http://www.youtube.com/v/ADNuqkGcmZ8&hl=en&fs=1">
</param><param name="allowFullScreen" value="true">
</param><param name="allowscriptaccess" value="always">
</param><embed src=http://www.youtube.com/v/ADNuqkGcmZ8&hl=en&fs=1
type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344">
</embed></object>
</html>

Comments during the session:
* Do not agree:
** Bruno: 97.8 of value is created by imitation: http://hbr.org/2010/04/defend-your-research-imitation-is-more-valuable-than-innovation/ar/1
[[Category:mbi]]

← Older revision		Revision as of 19:19, 27 August 2020
Line 1:		Line 1:
−	M4-S4 - Session ~~audio:~~	+	M4-S4 - Session notes
−
−	~~<html>~~
−	~~<audio controls><source src="/static/files/MBI/Module%204/M4-S4.mp3"type ="audio/mp3"/></audio>~~
−	~~</html>~~
−
−
−	~~'''Valuation methods'''~~
−	~~# Salvage value~~
−	~~# Current production~~
−	~~# Future (undiscounted) production~~
−	~~# Market price~~
−	~~# Book value~~
−	~~# Discounted future earnings~~
−	~~But in practice:~~
−	* Gut feel
−	* Competitive reference
−	* Growth rate
−	* Revenue
−	* [[Real Options\|Real Options]]
−	* [[Discounted Cash Flow\|Discounted Cash Flow]]
−	* Cost of creation of a product
−	* Cash Flow - Burn Rate
−
−	~~'''The story of the apple tree'''~~
−	~~A man has an apple tree that delivers him \$100,- per year in selling apples. Now he tries to sell the apple tree:~~
−	* The Lumber jack offers \$50,- for cutting it for wood
−	* The Grocer offered \$100,- for harvesting this year's crop
−	* The Marketer offers \$1499,- assuming the tree lives another 15 years
−	* The wealthy physician: ill pay the market price - whatever your last offer
−	* The young stock broker: capatilized earnings
−	** You did have expenses and did not make \$100,- but more like \$50,-
−	** I noticed an average of \$45,- earnings per year.
−	** I need to compare with other investment alternatives
−	** I am willing to pay a price that will give me 20% return.
−	** To figure out the price i'll divide \$45 by 0.2, so this is \$225,-
−	* The young stock broker revisited:
−	** Using discounted cash flow to compensate for the risk
−	** And using the 'end of life' value of the lumber jack
−	** The total offer become \$270,- and was taken for \$250,-
−
−	~~Morals of the story:~~
−
−	~~# Methods for valuation:~~
−	~~## '''Asset approach'''~~
−	~~### Salvage value~~
−	~~### Book value~~
−	~~## '''Income cash flow'''~~
−	~~### Current production~~
−	~~### Future (undiscounted) production~~
−	~~### Discounted future earnings~~
−	~~## '''Market (comparable) approach'''~~
−	~~### Price/Earnings ratio~~
−	~~### Market price~~
−	~~# Asset valuation methods and tools are useful but valuation is an art~~
−	~~# You should listen closely to the experts~~
−	~~## Focus on what they ''don't'' say (rather than say)~~
−
−	~~[[M4-S4 - DCF in a decision tree\|DCF in a decision tree]] is a good way of visualising risk and opportunity.~~
−
−	~~'''Earning multiples'''~~
−	* Suitable for companies with establised financial history
−	* Price / Earnings ratio represents the value of the business divide by its post tax profits
−	* It may not be easy which ratio to use
−	* The P/E ratios used in financial press should be reduced significantly when valuing a small business
−	* Quite often business advisors use a factor between 5 and 10
−
−	~~<html>~~
−	~~<object width="425" height="344">~~
−	~~<param name="movie" value="http://www.youtube.com/v/ADNuqkGcmZ8&hl=en&fs=1">~~
−	~~</param><param name="allowFullScreen" value="true">~~
−	~~</param><param name="allowscriptaccess" value="always">~~
−	~~</param><embed src=http://www.youtube.com/v/ADNuqkGcmZ8&hl=en&fs=1~~
−	~~type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344">~~
−	~~</embed></object>~~
−	~~</html>~~
−
−	~~Comments during the session:~~
−	* Do not agree:
−	** Bruno: 97.8 of value is created by imitation: http://hbr.org/2010/04/defend-your-research-imitation-is-more-valuable-than-innovation/ar/1
	[[Category:mbi]]		[[Category:mbi]]

← Older revision		Revision as of 19:59, 27 August 2020
Line 1:		Line 1:
−	M4-S4 - Session ~~notes~~	+	M4-S4 - Session audio:
		+
		+	<html>
		+	<audio controls><source src="/static/files/MBI/Module%204/M4-S4.mp3"type ="audio/mp3"/></audio>
		+	</html>
		+
		+
		+	'''Valuation methods'''
		+	# Salvage value
		+	# Current production
		+	# Future (undiscounted) production
		+	# Market price
		+	# Book value
		+	# Discounted future earnings
		+	But in practice:
		+	* Gut feel
		+	* Competitive reference
		+	* Growth rate
		+	* Revenue
		+	* [[Real Options\|Real Options]]
		+	* [[Discounted Cash Flow\|Discounted Cash Flow]]
		+	* Cost of creation of a product
		+	* Cash Flow - Burn Rate
		+
		+	'''The story of the apple tree'''
		+	A man has an apple tree that delivers him \$100,- per year in selling apples. Now he tries to sell the apple tree:
		+	* The Lumber jack offers \$50,- for cutting it for wood
		+	* The Grocer offered \$100,- for harvesting this year's crop
		+	* The Marketer offers \$1499,- assuming the tree lives another 15 years
		+	* The wealthy physician: ill pay the market price - whatever your last offer
		+	* The young stock broker: capatilized earnings
		+	** You did have expenses and did not make \$100,- but more like \$50,-
		+	** I noticed an average of \$45,- earnings per year.
		+	** I need to compare with other investment alternatives
		+	** I am willing to pay a price that will give me 20% return.
		+	** To figure out the price i'll divide \$45 by 0.2, so this is \$225,-
		+	* The young stock broker revisited:
		+	** Using discounted cash flow to compensate for the risk
		+	** And using the 'end of life' value of the lumber jack
		+	** The total offer become \$270,- and was taken for \$250,-
		+
		+	Morals of the story:
		+
		+	# Methods for valuation:
		+	## '''Asset approach'''
		+	### Salvage value
		+	### Book value
		+	## '''Income cash flow'''
		+	### Current production
		+	### Future (undiscounted) production
		+	### Discounted future earnings
		+	## '''Market (comparable) approach'''
		+	### Price/Earnings ratio
		+	### Market price
		+	# Asset valuation methods and tools are useful but valuation is an art
		+	# You should listen closely to the experts
		+	## Focus on what they ''don't'' say (rather than say)
		+
		+	[[M4-S4 - DCF in a decision tree\|DCF in a decision tree]] is a good way of visualising risk and opportunity.
		+
		+	'''Earning multiples'''
		+	* Suitable for companies with establised financial history
		+	* Price / Earnings ratio represents the value of the business divide by its post tax profits
		+	* It may not be easy which ratio to use
		+	* The P/E ratios used in financial press should be reduced significantly when valuing a small business
		+	* Quite often business advisors use a factor between 5 and 10
		+
		+	<html>
		+	<object width="425" height="344">
		+	<param name="movie" value="http://www.youtube.com/v/ADNuqkGcmZ8&hl=en&fs=1">
		+	</param><param name="allowFullScreen" value="true">
		+	</param><param name="allowscriptaccess" value="always">
		+	</param><embed src=http://www.youtube.com/v/ADNuqkGcmZ8&hl=en&fs=1
		+	type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344">
		+	</embed></object>
		+	</html>
		+
		+	Comments during the session:
		+	* Do not agree:
		+	** Bruno: 97.8 of value is created by imitation: http://hbr.org/2010/04/defend-your-research-imitation-is-more-valuable-than-innovation/ar/1
	[[Category:mbi]]		[[Category:mbi]]