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