Corporate Valuation Modeling : A Step-by-Step Guide

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Edition: 1st
Format: Paperback
Pub. Date: 2010-02-08
Publisher(s): Wiley
List Price: $102.65

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Summary

A critical guide to corporate valuation modelingValuation is at the heart of everything that Wall Street does. Every day, millions of transactions to purchase or sell companies take place based on prices created by the activities of all market participants. In this book, author Keith Allman provides you with a core model to value companies.Corporate Valuation Modeling takes you step-by-step through the process of creating a powerful corporate valuation model. Each chapter skillfully discusses the theory of the concept, followed by Model Builder instructions that inform you of every step necessary to create the template model. Many chapters also include a validation section that shows techniques and implementations that you can employ to make sure the model is working properly. Walks you through the full process of constructing a fully dynamic corporate valuation model A Tool Box section at the end of each chapter assists readers who may be less skilled in Excel techniques and functionsComplete with a companion CD-ROM that contains constructed models, this book is an essential guide to understanding the intricacies of corporate valuation modeling

Author Biography

Keith A. Allman is the manager of analytics and modeling at Pearl Street Capital Group. He is also the founder of Enstruct, a quantitative finance training and consulting company. Prior to this, he was a vice president in the Global Special Situations Group at Citigroup. Allman has also worked in Citigroup's Global Securitized Markets division modeling conduit transactions and in MBIA Corporation's Quantitative Analytics group. He is the author of the Wiley titles Modeling Structured Finance Cash Flows with Microsoft Excel and Reverse Engineering Deals on Wall Street with Microsoft Excel. Allman received a master's degree in international affairs with a concentration in finance and banking from Columbia University and dual bachelor degrees from UCLA.

Table of Contents

Prefacep. ix
Acknowledgmentsp. xi
Introductionp. 1
Overview of the Corporate Valuation Processp. 1
Conceptual Roadmapp. 4
Technical Roadmapp. 5
A Few Best Practices Regarding Financial Modelingp. 7
How This Book Worksp. 8
Initial Settings and Assumptions Sheet Setupp. 10
Toolbox: Naming Cellsp. 15
Dates and Timingp. 17
The Need for a Flexible Systemp. 17
The Forecast Periodp. 18
The Terminal Periodp. 19
Historical Time Periodsp. 19
Event Timingp. 21
Dates and Timing on the Assumptions Sheetp. 22
Introducing the Vectors Sheetp. 23
Summary of Dates and Timingp. 25
Toolboxp. 25
Revenue, Costs, and the Income Statementp. 39
Revenuep. 39
Three Methods for Estimating Revenue Based on Historical Datap. 41
Costsp. 51
Organizing Revenue and Cost Assumptions for Scenario Analysisp. 53
Installing an Excel-Based Scenario Selector Systemp. 54
Bringing Revenues and Costs Together: The Income Statementp. 58
Integrating the Income Statementp. 58
A Work in Progressp. 64
Toolboxp. 65
Capital Structure and Balance Sheetp. 75
What the Company Ownsp. 77
Starting the Balance Sheet with Assetsp. 81
What the Company Owesp. 86
Continuing the Balance Sheet with Liabilitiesp. 89
What the Company Has Already Paid Forp. 91
Continuing the Balance Sheet with Equityp. 93
Toolbox: Be Careful with Growthp. 94
Capital Expenditures, Depreciation, Intangibles, and Amortizationp. 95
Capital Expendituresp. 95
Depreciationp. 96
A Balance Sheet or an Income Statement Item?p. 97
Concept Statusp. 97
Capital Expenditure Schedules Setupp. 99
Depreciation Schedules Setupp. 101
Intangiblesp. 105
Amortizationp. 105
Intangibles and Amortization Schedulesp. 106
Income Statement and Balance Sheet Effectsp. 108
Integrating Capital Expenditures, Depreciation, Intangibles, and Amortizationp. 109
Toolboxp. 111
Long-Term Debtp. 117
What Is Long-Term Debt?p. 117
Using Debt for a Reasonp. 117
Modeling Debt: Debt Components in Detailp. 119
Setting Up Debt and Calculating What Is Duep. 121
Paying Liabilitiesp. 133
Paying the Correct Liability Amountp. 138
Integrating Long-Term Debt into the Income Statement and Balance Sheetp. 147
Toolboxp. 149
Balancing the Modelp. 153
Calculating Cash and Short-Term Debt Interestp. 153
Working with the Modelp. 161
The Model as an Analysis Toolp. 164
Toolbox: Excel's Calculation Modesp. 164
Reconciling Cash Flowp. 167
The Cash Flow Statementp. 167
Working Capitalp. 168
Calculating Working Capitalp. 169
Building the Cash Flow Statementp. 171
Preventing Error through Internal Validationp. 178
Implementing Internal Validationsp. 178
Other Validationsp. 181
Toolboxp. 181
Free Cash Flow, Terminal Value, and Discount Rates and Methodsp. 185
Free Cash Flow: A Matter of Perspectivep. 185
Implementing Free Cash Flowp. 189
Terminal Value: Beyond the Forecast Periodp. 191
Calculating and Integrating a Stable-Growth Terminal Valuep. 194
Discount Rates and Methodsp. 199
Calculating and Implementing the Weighted Average Cost of Capitalp. 203
Discounting with Multiple Rates to Determine the Corporate Valuep. 206
After the Corporate Valuationp. 207
Toolboxp. 207
Output Reportingp. 215
Output Summaryp. 215
Preparing for the Output Summary Sheetp. 216
Web Downloadsp. 216
Connecting the Example Model to the Webp. 217
Creating the Output Summary Sheetp. 221
p. 223
Creating Dynamic Chartsp. 224
Toolboxp. 226
Automation Using Visual Basic Applications (VBA)p. 233
The Object-Oriented Programming Language (OOP)p. 233
Follow the Rulesp. 235
The Visual Basic Editorp. 235
Writing Code: Subroutines and Functionsp. 238
Understanding VBA Code and Practicing Coding Techniquesp. 239
Moving Data Using VBAp. 240
A First Look at Loops and Variables in VBAp. 244
Common Errors for First-Time VBA Programmersp. 247
VBA within a Financial Modeling Contextp. 247
Eliminating Circular Referencesp. 248
Creating a Scenario Generatorp. 252
Automatic Sheet Printingp. 257
Continuing with VBAp. 261
Conclusionp. 262
About the CD-ROMp. 263
About the Authorp. 266
Indexp. 267
Table of Contents provided by Ingram. All Rights Reserved.

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