Company Valuation Under IFRS: Interpreting and Forecasting Accounts Using International Financial Reporting Standards / Edition 2

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Overview

International Financial Reporting Standards (IFRS) are now mandatory in many parts of the world, including Europe, Australia and China. In addition, many countries are in the process of IFRS adoption. Lastly, foreign registrants in US companies no longer have to undertake a costly US-IFRS reconciliation. Therefore, it is clear that investors, analysts and valuers need to understand financial statements produced under IFRS to feed in to their valuations and broader investment decisions.
Written by practitioners for practitioners, the book addresses valuation from the viewpoint of the analyst, the investor and the corporate acquirer. It starts with valuation theory: what is to be discounted and at what discount rate? It explains the connection between standard methodologies based on free cash flow and on return on capital. And it emphasizes that, whichever method is used, accurate interpretation of accounting information is critical to the production of sensible valuations. The authors argue that forecasts of cash flows imply views on profits and balance sheets, and that non-cash items contain useful information about future cash flows - so profits matter.
The book then addresses the implications for analysis and valuation of key aspects of IFRS including:
- Pensions
- Stock options
- Derivatives
- Provisions
- Leases
The text also sets out which countries use GAAP, as well as the key differences between IFRS and US GAAP treatments of these issues, in addition to their implications for analysis.
A detailed case study is used to provide a step-by-step valuation of an industrial company using both free cash flow and economic profit methodologies. The authors then address a range of common valuation problems, including cyclical or immature companies, as well as the specialist accounting and modelling knowledge required for regulated utilities, resource extraction companies, banks, insurance and real estate companies. Accounting for mergers and disposals is first explained and then illustrated with a detailed potential acquisition using real companies.

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Product Details

  • ISBN-13: 9781905641772
  • Publisher: Harriman House Publishing
  • Publication date: 6/1/2008
  • Edition description: 2nd Revised ed.
  • Edition number: 2
  • Pages: 406
  • Product dimensions: 6.40 (w) x 9.40 (h) x 1.20 (d)

Meet the Author

Nick Antill
Since 2000, Nick has divided his time between training and consultancy in the areas of energy and finance, and currently works as an associate of BG Training and as a consultant for Citigroup. Previously, he spent 16 years in the City of London as an equity investment analyst specialising in European energy companies, finishing as head of the European team at Morgan Stanley. He began his career in the oil industry, where he worked as an economist with BP and Saudi Aramco. Previous publications include (with Robert Arnott) 'Valuing oil and gas companies'.
Kenneth Lee
In what now seems like a previous life, Kenneth was an accountant and tax consultant with Arthur Andersen in Dublin. He then held various positions in the financial training business culminating in becoming the accounting specialist at BG training. There he trained analysts from all the major banks and published 'Accounting for Investment Analysts: an international perspective'. In 2009, Kenneth joined Barclays Capital as Deputy Head of European equity Research and lead analyst on Accounting Research. He is a fellow of the Institute of Chartered Accountants in Ireland, a member of the Securities Institute of Taxation in Ireland and a CFA charterholder.

Nick Antill
Since 2000, Nick has divided his time between training and consultancy in the areas of energy and finance, and currently works as an associate of BG Training and as a consultant for Citigroup. Previously, he spent 16 years in the City of London as an equity investment analyst specialising in European energy companies, finishing as head of the European team at Morgan Stanley. He began his career in the oil industry, where he worked as an economist with BP and Saudi Aramco. Previous publications include (with Robert Arnott) 'Valuing oil and gas companies'.
Kenneth Lee
In what now seems like a previous life, Kenneth was an accountant and tax consultant with Arthur Andersen in Dublin. He then held various positions in the financial training business culminating in becoming the accounting specialist at BG training. There he trained analysts from all the major banks and published 'Accounting for Investment Analysts: an international perspective'. In 2009, Kenneth joined Barclays Capital as Deputy Head of European equity Research and lead analyst on Accounting Research. He is a fellow of the Institute of Chartered Accountants in Ireland, a member of the Securities Institute of Taxation in Ireland and a CFA charterholder.

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Table of Contents

Chapter One - It's not just cash; accounts matter
1. Introduction - Valuation refresher
2. Distributions, returns and growth
3. Cash, accruals and profits
4. The Economic Profit model
5. The real world of specific forecasts
6. Introducing debt
Chapter Two - WACC - Forty years on
1. Risk and Return
2. Diversification and portfolio effects
3. The problem of growth
4. Leverage and the cost of equity
5. Building in tax shelters
6. Time varying WACC
7. The walking wounded - real options and capital arbitrage
8. International markets and foreign exchange rates
9. Conclusions on discount rates
Chapter Three - What do we mean by 'return'?
1. IRR versus NPV
2. Calculating CFROI
3. Another approach: CROCI
4. Uses and abuses of ROCE
Chapter Four - Key issues in accounting and their treatment under IFRS
1. Revenue recognition and measurement
2. Stock options
3. Taxation
4. Accounting for pension obligations
5. Provisions
6. Leasing
7. Derivatives
8. Fixed assets
9. Foreign exchange
Chapter Five - Valuing a company
1. Building a forecast
2. Ratios and scenarios
3. Building a valuation
4. Frequent problems
5. Three period models
6. Conclusions regarding basic industrials
Chapter Six - The awkward squad
1. Utilities
2. Resource extraction companies
3. Banks
4. Insurance companies
5. Property companies
Chapter Seven - An introduction to consolidation
1. Introduction
2. Treatment of Investments
3. Methods of consolidation
4. Further issues in consolidation
5. Accounting for associates and joint ventures
6. Purchase accounting and uniting of interests
7. Foreign subsidiaries
8. Accounting for disposals
9. Modelling mergers and acquisitions
Chapter Eight - Conclusions and continuations
1. Conclusions
2. Continuations
Further reading
Appendices
IAS or IFRS in, or coming into, force
IFRS in Emerging Markets
Chinese Accounting Standards - major differences with IFRS
Analysis formulae
Index

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