Business Valuation
A basic approach
Business valuation is invariably linked with the focus on value maximisation. The goal
of every company is to increase its equity, which requires the development and
implementation of a long-term value creation strategy. The economic value of an enterprise
is of primary importance here, such value being understood as the enterprise’s capacity
for free cash flows generation. The emphasis is on the future, and not on the past; on
real income and not on book profit.
The aim of this book is to present the theories, models and methods of business valuation
while contrasting them with the practice of company value assessment. We begin our
discussion with a detailed description of various approaches to, and types of, value
categories – from historical and philosophical ones to those grounded in economic
theory.
The history and the present practice of valuation leads us to the conclusion that
valuation is both a theory (as one of the initial and most important components of Value
Based Management) and an art, based on the experience and intuition of business appraiser.
However, we should be fully aware of the fact that even the application of the best
theories and methods of business valuation does not automatically reflect the real market
value of the assets at hand (especially in the short-term).
Marek Panfil, Andrzej Szablewski
This book includes a collection of papers which, whether studied together or separately,
are remarkable examples of a combination of the authors’ first-rate proficiency and
insight and their ability to arouse the readers’ interest. The opus discussed here is
both a scientific work and a popular one, understood as addressed not exclusively to
scholars, but also to all those dealing with business valuation in practice. It presents a
wide range of issues which, when they are known and understood, prevent us from getting
lost in the increasingly complex realities of the global economy. In this book, stock
market investors will find inspiration, for their own reflection, on the basis of the
development of company value and, undoubtedly, a wealth of knowledge which will allow them
to make critical evaluations of their investment decisions.
Ludwik Sobolewski PhD, CEO of the Warsaw Stock Exchange
Divided into 12 chapters, this book is a treasure trove of information which will provide
a stimulus for every manager to search for value in his or her enterprise. Practical
examples appended to theoretical analysis enhance the issues discussed that, quite
straightforwardly explained, can be referred to as a compendium of knowledge necessary for
students, university fellows and all practitioners as well. I will gladly use this
publication to increase my knowledge pertaining either to the evaluation of investors’
expectations or to the assessment of the influence which customer value exerts on company
value.
Herbert Wirth, PhD, CEO of KGHM Polska Miedź SA (copper and silver global
manufacturer)
A practical guide to business valuation. The book, set mostly in the contemporary reality
of the Polish economy, offers a combination of theoretical knowledge and provides a good
deal of examples or case studies. This volume should also be required reading for
financiers and capital market participants.
Michał Wrzesiński, PhD, Professor of Warsaw School of Economic, CEO of Dom Maklerski
Navigator SA (a brokerage house)
Table of Contents
Introduction
1. History, Standards and Techniques of Enterprise Valuation
1.1.Philosophical, Sociological and Economic Context of Value Category
1.2.Development of Enterprise Valuation Techniques in the 2Oth and 21st Century.
1.3.Enterprise Value Standards
1.4.Generators and Consistencies in Creating Enterprise Value
1.5.Approaches Used in Enterprise Valuation
Conclusions
2. Cost of Capital Calculation
2.1.Cost of Capital Definition and Application
2.1.1.Basic Terms
2.1.2.Weighted Average Cost of Capital vs. Microeconomic Perspective of the Enterprise
2.2.Basic Cost of Equity Calculation Models
2.2.1.Dividend Discount Model (DDM)
2.2.2.Build-Up Method
2.2.3.Capital Asset Pricing Model (CAPM)
2.3.Basic Cost of Debt Calculation Models
2.3.4.Yield to Maturity Method
2.3.5.Selected Problems Associated with Establishing the Cost of Debt
2.3.6.Estimating Cost of Capital on Emergingor Turbulent Markets
2.4.Calculating Weighted Average Cost of Capital: Example Analysis
2.4.1.Peer Selection
Conclusions
3. Enterprise Risk Valuation
3.1.Evolution of the Role of Risk Management in the Process of Enterprise Value Creation
3.2.Types of Enterprise Risk
3.3.Influence of Risk Management Quality on Company Valuation
Conclusions
4. Influence of Market Risk on the Valuation of KGHM Polska Miedź SA
4.1.Brief Characteristics of KGHM Polska Miedź SA
4.2.Financial Risk Management in Practice
4.2.1.Financial Risk Measurement
4.2.2.Goals and Motives Behind Market Risk Management
4.2.3.Influence of Market Risk Management on the Company
4.3.Hedging in the Context of Profits and Losses
4.4.Influence of Market Conditions on the Valuation of KGHM
4.4.1.Discount in the Valuation of KGHM Shares
4.4.2.Ways of Creating Value in the Company
Conclusions
5. Impact of Crude Oil Market Changes on Corporate Valuation:
Example of Exxon Mobil
5.1.Impact of Crude Oil Market Changes on the Financial Performance and Market Valuation
of Petrochemical Companies
5.2.Influence of Macroeconomic Factors on Financial Performance and Corporate Value Using
Exxon Mobil Corporation as an Example
5.3.Statistical Characteristics of Crude Oil Prices
5.4.Two Instability Dimensions on the Crude Oil Market
5.5.Long-term Forecasting of Crude Oil Price
5.6.Proposal of Forecasting Crude Oil Price and Exxon MobiFs
Operating Profit
Conclusions
6. Real Estate Valuation vs. Enterprise Valuation in the Economy of Instability
6.1.Post-Industrial Economy of Instability
6.2.Economy and Valuation at the Crossroads
6.3.Global Dimension of Valuation
6.4.Global Informational Dysfunctions
6.5.Enterprise Valuation vs. Real Estate in Poland: Methodological and Legał
Inconsistencies
Conclusions
7. Company Valuation with the Discounted Cash Flow Method (DCF)
7.1.Essence of the DCF Method DCF Yaluation Process
7.2.1.Financial and Strategie Analysis ofthe Valued Enterprise
7.2.2.Future Free Cash Flow Forecast
7.2.3.Discount Ratę Forecast
7.2.4.Discounting Future Free Cash Flows and Terminal Value
7.2.5.Interpretation of Valuation Results
7.3.Limitations of the DCF Method
7.4.Valuation of Jutrzenka Holding S.A. Group
7.4.1.Description ofthe Company
7.4.2.Shareholder Structure ofthe Dominant Entity of Jutrzenka Holding S.A
7.4.3.Market and Competition
7.4.4.Main Risk Factors
7.4.5.Estimation ofthe Enterprise Value, Equity Value and Value of One Share in Jutrzenka
Holding with the DCF Method
7.4.6.Valuation of Jutrzenka Holding S.A. with the Use ofthe Multiples Method
7.4.7.Establishing the Finał Value of One Share in Jutrzenka Holding S.A
Conclusions
8. Business Valuation with the Dividend Discount Method
8.1.Returning Cash to Owners: Capital Gains, Dividends and Own Share Repurchase
8.2.Future Dividend Forecasting
8.3.Dividend Discount Models
8.3.1.Assumptions
8.3.2.Basic Valuation Models
8.3.3.Constant Dividend Model
8.3.4.Constant Dividend Growth Models
8.3.5.Multistage Dividend Growth: Two- and Three-stage Models
Conclusions
9. Measuring the Vałue of Customers
9.1.Value Exchange as the Basis of Customer Valuation
9.2.Methods of Assessing the Value of Customers
9.2.1.Valuation Based on Historical Data
9.2.2.Valuation Based on Forecast Data - Customer Lifetime Value
9.2.3.Narrower Approach to Measuring Customer Lifetime Value (CLV)
9.2.4.Broad Approach to Measuring Customer Lifetime Value
9.3.Practical Use of Customer Valuation
Conclusions
10. Valuation of Intangible Resources
10.1.Intangible Resources and Their Influence on Enterprise Value
10.2.Intangible Resources vs. Intangible Assets
10.3.Valuation of Total Intangible Resources: Intellectual Capital
10.4.Valuation of Individual Items of Intangible Resources
10.4.1.Cost-Based Approach
10.4.2.Market Approach
10.4.3.Income-Based Approach
10.4.4.Option Pricing Approach (Real Option Valuation)
Conclusions
11. Company Valuation within the IPO Process
11.1.Capital-Related and Capital-Unrelated Significance of Floating Companies
11.2.The Floating Procedurę and Investment Message in a Process of Company Valuation
Stages
11.3.Factors Determining the Correctness of Company Valuation in the IPC Process
11.4.Discount and Underpricing Effect in Floating Companies
11.5.Underpricing Analysis of Companies Floating on the Warsaw Stock Exchange in the Years
2005-Q3 2010
11.6.Case Study
11.6.1.Infovide Matrix SA: Underpriced Flotation
11.6.2.K2 Internet SA: Overpriced Debut
11.6.3.Gino Rossi SA: "spot-on" Valuation
Conclusions
12. Football Club Valuation: Example of Juventus F.C
12.1.Business and Economy
12.2.Football Business Elements
12.2.1. Europe‘s "Big Five"
12.2.2. Ekstraklasa League in Poland
12.3.Football Impact on Economic Growth
12.4.Football Clubs at the Stock Exchanges
12.4.1.Trend Analysis from Historical Perspective: Case Study of the Premiership
12.4.2.Capitalisation of Selected Football Clubs on Stock Exchanges
12.4.3.STOXX Europę Football Index
12.5.Methods of Valuating a Football Club
12.5.1.Factors Influencing the Value of an Enterprise
12.5.2.Cash Generating Capacity of Football Clubs
12.5.3.Football Club Yaluation: Example of Juventus F.C
12.6 2012 European Championships and the Development of the Polish Economy
Conclusions
Conclusion - The Challenges for Business Valuation
Bibliography
Internet pages
Biographies
300 pages, Hardcover Format: 16.5x24.5cm
