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Corporate Valuation Modeling: A Step-by-Step Guide / Edition 1

Corporate Valuation Modeling: A Step-by-Step Guide / Edition 1

by Keith A. Allman
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A critical guide to corporate valuation modeling

Valuation 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 functions

Complete with a companion CD-ROM that contains constructed models, this book is an essential guide to understanding the intricacies of corporate valuation modeling.

Note: CD-ROM/DVD and other supplementary materials are not included as part of eBook file.

Product Details

ISBN-13: 9780470481790
Publisher: Wiley
Publication date: 02/08/2010
Series: Wiley Finance Series , #537
Pages: 304
Product dimensions: 7.40(w) x 9.20(h) x 0.80(d)

About the Author

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.

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Table of Contents

Preface ix

Acknowledgments xi

Chapter 1 Introduction 1

Overview of the Corporate Valuation Process 1

Conceptual Roadmap 4

Technical Roadmap 5

A Few Best Practices Regarding Financial Modeling 7

How This Book Works 8

Model Builder 1.1 Initial Settings and Assumptions Sheet Setup 10

Toolbox: Naming Cells 15

Chapter 2 Dates and Timing 17

The Need for a Flexible System 17

The Forecast Period 18

The Terminal Period 19

Historical Time Periods 19

Event Timing 21

Model Builder 2.1 Dates and Timing on the Assumptions Sheet 22

Model Builder 2.2 Introducing the Vectors Sheet 23

Summary of Dates and Timing 25

Toolbox 25

Chapter 3 Revenue, Costs, and the Income Statement 39

Revenue 39

Model Builder 3.1 Three Methods for Estimating Revenue Based on Historical Data 41

Costs 51

Organizing Revenue and Cost Assumptions for Scenario Analysis 53

Model Builder 3.2 Installing an Excel-Based Scenario Selector System 54

Bringing Revenues and Costs Together: The Income Statement 58

Model Builder 3.3 Integrating the Income Statement 58

A Work in Progress 64

Toolbox 65

Chapter 4 Capital Structure and Balance Sheet 75

What the Company Owns 77

Model Builder 4.1 Starting the Balance Sheet with Assets 81

What the Company Owes 86

Model Builder 4.2 Continuing the Balance Sheet with Liabilities 89

What the Company Has Already Paid For 91

Model Builder 4.3 Continuing the Balance Sheet with Equity 93

Toolbox: Be Careful with Growth 94

Chapter 5 Capital Expenditures, Depreciation, Intangibles, and Amortization 95

Capital Expenditures 95

Depreciation 96

A Balance Sheet or an Income Statement Item? 97

Concept Status 97

Model Builder 5.1 Capital Expenditure Schedules Setup 99

Model Builder 5.2 Depreciation Schedules Setup 101

Intangibles 105

Amortization 105

Model Builder 5.3 Intangibles and Amortization Schedules 106

Income Statement and Balance Sheet Effects 108

Model Builder 5.4 Integrating Capital Expenditures, Depreciation, Intangibles, and Amortization 109

Toolbox 111

Chapter 6 Long-Term Debt 117

What Is Long-Term Debt? 117

Using Debt for a Reason 117

Modeling Debt: Debt Components in Detail 119

Model Builder 6.1 Setting Up Debt and Calculating What Is Due 121

Paying Liabilities 133

Model Builder 6.2 Paying the Correct Liability Amount 138

Model Builder 6.3 Integrating Long-Term Debt into the Income Statement and Balance Sheet 147

Toolbox 149

Chapter 7 Balancing the Model 153

Model Builder 7.1 Calculating Cash and Short-Term Debt Interest 153

Working with the Model 161

The Model as an Analysis Tool 164

Toolbox: Excel's Calculation Modes 164

Chapter 8 Reconciling Cash Flow 167

The Cash Flow Statement 167

Working Capital 168

Model Builder 8.1 Calculating Working Capital 169

Model Builder 8.2 Building the Cash Flow Statement 171

Preventing Error through Internal Validation 178

Model Builder 8.3 Implementing Internal Validations 178

Other Validations 181

Toolbox 181

Chapter 9 Free Cash Flow, Terminal Value, and Discount Rates and Methods 185

Free Cash Flow: A Matter of Perspective 185

Model Builder 9.1 Implementing Free Cash Flow 189

Terminal Value: Beyond the Forecast Period 191

Model Builder 9.2 Calculating and Integrating a Stable-Growth Terminal Value 194

Discount Rates and Methods 199

Model Builder 9.3 Calculating and Implementing the Weighted Average Cost of Capital 203

Model Builder 9.4 Discounting with Multiple Rates to Determine the Corporate Value 206

After the Corporate Valuation 207

Toolbox 207

Chapter 10 Output Reporting 215

Output Summary 215

Model Builder 10.1 Preparing for the Output Summary Sheet 216

Web Downloads 216

Model Builder 10.2 Connecting the Example Model to the Web 217

Model Builder 10.3 Creating the Output Summary Sheet 221

Charts 223

Model Builder 10.4 Creating Dynamic Charts 224

Toolbox 226

Chapter 11 Automation Using Visual Basic Applications (VBA) 233

The Object-Oriented Programming Language (OOP) 233

Follow the Rules 235

The Visual Basic Editor 235

Writing Code: Subroutines and Functions 238

Understanding VBA Code and Practicing Coding Techniques 239

Model Builder 11.1 Moving Data Using VBA 240

Model Builder 11.2 A First Look at Loops and Variables in VBA 244

Common Errors for First-Time VBA Programmers 247

VBA within a Financial Modeling Context 247

Model Builder 11.3 Eliminating Circular References 248

Model Builder 11.4 Creating a Scenario Generator 252

Model Builder 11.5 Automatic Sheet Printing 257

Continuing with VBA 261

Conclusion 262

About the CD-ROM 263

About the Author 266

Index 267

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