GESTIÓN FINANCIERA

Semana 12
Adrián Cañón
Bienvenidos
Buenos días.

Estamos Acomodándonos a la clase.

Iniciaremos a las 11:07am. Mientras tanto
es recomendable que:
• Estires manos, piernas
• Tomes aire
• Hidratarte
• Hacer consultas al docente https://twitter.com/enchufetv/status/127589800
• Pausas activas 1379209223/photo/1

Preguntas anónimas:
hacanon@universidadean.edu.co app.gosoapbox.com
Usar código: 131-047-107
 Maximisation of
shareholder wealth

Investment Financing
Dividend decision
decision decision
 Reading for this week

• Chapter 7 – Gitman

• Chapter 1 – Damodaran

Define this concepts:

o Market Capitalization (Market Cap)

o Firm Value

o Enterprise Value (EV)

Valuation

¿PRICE? ¿VALUE?
Valuation

¿WHY?

Portfolio management Inorganic Growth

IPO Risk exposure Taxation

Collateral Splits and Merges

Valuation

Share
 Valuation

Assets Relative
DCF
based (Multiples)
Assets based valuation
 Valuation

Assets Relative
DCF
based (Multiples)
Assets Based Valuation

Value/share = Value of net tangible assets/number of shares.

• Intangible assets (including goodwill) should be excluded, unless they

have a market value (for example patents and copyrights, which could be
sold).

• There's no reason why the seller should accept less than the value of the
net assets or they would be better selling the assets piecemeal.

Assets based
Assets Based Valuation

Considerations to take in account:

• Is professional valuation needed?
• Are all liabilities included?
• Are receivables recoverable?
• Will inventory sell?
• Is there a market into which the assets could be sold?
• Are assets being used as security?
• What would realisation of the assets cost?
Assets Based Valuation

What is the value of an ordinary share using the net assets basis of
valuation?
Assets Based Valuation
Assets Based Valuation

What values should be used?

• Historical cost basis (net book value) – based on old costs and
depreciation so unlikely to give a realistic value.
• Realisable basis – if the assets are to be sold, or the business
as a whole broken up. Not relevant if a minority stake is being
sold, as the assets will continue in use.
• Replacement basis – if the assets are to be used on an on-
going basis: what would it cost to set up a similar business?
Assets Based Valuation
Statement of financial position Within non-current assets is
$ million goodwill of $5m and a building
Non-current assets 60 of NBV $10m, which has a
Current assets 35 market value of $25m.
95
Receivables should be written
$1 Ordinary shares 40
down by $2m and inventory by
Reserves 20
$3m to the lower of cost and
60 net realisable value.
Non-current liabilities 25
85 What is the value per share
Current liabilities 10 using the net realisable asset
95 basis?
Relative Valuation (Multiples analysis)
 Valuation

Assets Relative
DCF
based (Multiples)
Relative valuation

$400.000.000 ?
Relative valuation

$400.000.000 ?

100 m2 $4.000.000 /m2 150 m2

Relative valuation

𝑊ℎ𝑎𝑡 𝑖𝑠 𝑝𝑎𝑖𝑑
𝑀ú𝑙𝑡𝑖𝑝𝑙𝑒 =
𝑊ℎ𝑎𝑡 𝑖𝑡 𝑟𝑒𝑡𝑢𝑟𝑛𝑠
 Relative valuation
• Equity Value (Mkt Cap)

• Firm Value
𝑊ℎ𝑎𝑡 𝑖𝑠 𝑝𝑎𝑖𝑑
• Enterprise Value

𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑒 =
• Revenues

• Profit
𝑊ℎ𝑎𝑡 𝑖𝑡 𝑟𝑒𝑡𝑢𝑟𝑛𝑠
• Cashs

• Book value
 Relative valuation

MktCap/B
Múltiplo P/E ratio EV/EBITDA
ook Value
Price/Sales

What is paid Precio por Enterprise Capitalizació Precio por

(numerator) acción Value n bursatil acción
Valor Ventas por
What it Ganancias contable
EBITDA del
acción
returns por acción
patrimonio
Relative valuation
Relative valuation
GESTIÓN FINANCIERA

Semana 12
Adrián Cañón
Bienvenidos
Buenos días.

Estamos Acomodándonos a la clase.

Iniciaremos a las 11:07am. Mientras tanto
es recomendable que:
• Estires manos, piernas
• Tomes aire
• Hidratarte
• Hacer consultas al docente https://twitter.com/enchufetv/status/127589800
• Pausas activas 1379209223/photo/1

Preguntas anónimas:
hacanon@universidadean.edu.co app.gosoapbox.com
Usar código: 131-047-107
 Maximisation of
shareholder wealth

Investment Financing
Dividend decision
decision decision
 Reading for this week

• Chapter 7 – Gitman

• Chapter 1 – Damodaran

Define this concepts:

o Market Capitalization (Market Cap)

o Firm Value

o Enterprise Value (EV)

Valuation

Cash + Other non operative

DEBT
Working capital

Fixed + Intangible assets Equity

 Valuation

Cash + Other non operative

DEBT
Working capital
Operative
Assets Fixed + Intangible assets Equity
Valuation

Cash + Other non operative

DEBT

Operative Assets
Equity
Valuation

Cash + Other non operative

DEBT

Operative Assets
Equity

FIRM VALUE
(FV)
Valuation

DEBT

Operative Assets
Equity

minus
ENTERPRISE
VALUE Cash + Other non operative
(EV)
Valuation

Cash + Other non operative

Equity
Operative Assets

Market
minus
Capitalization
(Market Cap)
DEBT
Valuation

Cash + Other non operative

Equity
Operative Assets

Market
minus
Capitalization
(Market Cap)
DEBT

= #shares * Price
Valuation

Summing up

FV= EV + Cash & Non Operative assets

FV= DEBT + Market Cap

EV = DEBT + Market cap - Cash & Non Operative assets

Valuation

What are we valuating?

Share

Market Capitalization
(Market Cap)

= #shares * Price
 Valuation

Assets Relative
DCF
based (Multiples)
Assets based valuation
Assets Based Valuation
Statement of financial position Within non-current assets is
$ million goodwill of $5m and a building
Non-current assets 60 of NBV $10m, which has a
Current assets 35 market value of $25m.
95
Receivables should be written
$1 Ordinary shares 40
down by $2m and inventory by
Reserves 20
$3m to the lower of cost and
60 net realisable value.
Non-current liabilities 25
85 What is the value per share
Current liabilities 10 using the net realisable asset
95 basis?
Relative Valuation (Multiples analysis)
Relative valuation

𝑃𝑟𝑒𝑐𝑖𝑜 𝑎𝑐𝑐𝑖ó𝑛
𝑃𝐸𝑅 = 𝑃\E 𝑟𝑎𝑡𝑖𝑜 =
𝐸𝑃𝑆
Relative valuation
Relative valuation

The P/E approach is very common in practice, but needs to be used

with care. The most important difficulties are:
• Listed companies often have a range of activities, so it is hard
to match them to smaller, less diverse companies.
• Within each sector there is a range of P/E ratios reflecting each
company's prospects. Outlying P/Es should probably be
ignored.
Relative valuation
Relative valuation

In addition, unlisted companies are generally less attractive than listed ones
because:
• There is a ready market for shares in listed companies but unlisted shares are
often difficult to value and sell.
• Listed companies are closely scrutinised and regulated so are less risky than
unlisted companies.
• Major investors in listed companies are well-diversified so require a return
only for systematic risk. Investors in unlisted companies often require a return
for total risk hence share prices tend to be lower.
• Unlisted companies often depend on the skill of their founders and their
general management is weaker.
Relative valuation

The relative unattractiveness of unlisted companies means that:

For examination purposes, and in practice you should normally take a figure
around one-half to two-thirds of the industry average when valuing an
unquoted company.
Either
• Reduce the P/E ratios being used by 1/2 to 1/3 then value the
company; or
• Reduce the final valuation by 1/2 to 1/3.
DCF = Discounted Cash Flow Valuation
 Valuation

Assets Relative
DCF
based (Multiples)

Dividend

Dividend
growth

Business
DCF
DCF: Dividend model

Price
DCF: Dividend model

Price

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑜 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑜 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑜

𝑃𝑟𝑖𝑐𝑒 = + + +⋯
1 + 𝐾𝑒 1 1 + 𝐾𝑒 2 1 + 𝐾𝑒 3
DCF: Dividend model

Precio

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝑃𝑟𝑖𝑐𝑒 =
𝐾𝑒
DCF: Dividend model

If a company is expected to pay an annual dividend

of $0.50 per share on its equity shares into the
foreseeable future, and the cost of equity is 8%,
the market value of the share would be :
FAST FORWARD
DCF: Dividend growth model

Price
DCF: Dividend growth model

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑1 = 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑ℎ𝑜𝑦 ∗ (1 + 𝑔)
Price 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑2 = 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑ℎ𝑜𝑦 ∗ 1 + 𝑔 2

3
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑3 = 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑ℎ𝑜𝑦 ∗ 1 + 𝑔
DCF: Dividend growth model

Price
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝑃𝑟𝑖𝑐𝑒 =
𝐾𝑒 − 𝑔
DCF: Dividend growth model
DCF: Dividend growth model
GESTIÓN FINANCIERA

Semana 12
Adrián Cañón
Bienvenidos
Buenos días.

Estamos Acomodándonos a la clase.

Iniciaremos a las 11:07am. Mientras tanto
es recomendable que:
• Estires manos, piernas
• Tomes aire
• Hidratarte
• Hacer consultas al docente https://twitter.com/enchufetv/status/127589800
• Pausas activas 1379209223/photo/1

Preguntas anónimas:
hacanon@universidadean.edu.co app.gosoapbox.com
Usar código: 131-047-107
 Reading for this week

• Chapter 7 – Gitman

• Chapter 1 – Damodaran

Prepare this lecture for Tuesday:

https://www.accaglobal.com/content/dam/acca/global/PDF-
students/2012s/fm-valuations3.pdf

Research for tomorrow: Market Efficient Hypothesis (MEH).

What do it says about stock prices?
 Maximisation of
shareholder wealth

Investment Financing
Dividend decision
decision decision
Valuation

What are we valuating?

Share

Market Capitalization
(Market Cap)

= #shares * Price
 Valuation

Assets Relative
DCF
based (Multiples)
Relative Valuation (Multiples analysis)
Relative valuation

𝑃𝑟𝑒𝑐𝑖𝑜 𝑎𝑐𝑐𝑖ó𝑛
𝑃𝐸𝑅 = 𝑃\E 𝑟𝑎𝑡𝑖𝑜 =
𝐸𝑃𝑆
Relative valuation
Relative valuation

The relative unattractiveness of unlisted companies means that:

For examination purposes, and in practice you should normally take a figure
around one-half to two-thirds of the industry average when valuing an
unquoted company.
Either
• Reduce the P/E ratios being used by 1/2 to 1/3 then value the
company; or
• Reduce the final valuation by 1/2 to 1/3.
DCF = Discounted Cash Flow Valuation
 Valuation

Assets Relative
DCF
based (Multiples)

Dividend

Dividend
growth

Business
DCF
DCF: Dividend model

Price
DCF: Dividend model

Price

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑜 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑜 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑜

𝑃𝑟𝑖𝑐𝑒 = + + +⋯
1 + 𝐾𝑒 1 1 + 𝐾𝑒 2 1 + 𝐾𝑒 3
DCF: Dividend model

Precio

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝑃𝑟𝑖𝑐𝑒 =
𝐾𝑒
DCF: Dividend model

If a company is expected to pay an annual dividend

of $0.50 per share on its equity shares into the
foreseeable future, and the cost of equity is 8%,
the market value of the share would be :
FAST FORWARD
DCF: Dividend growth model

Price
DCF: Dividend growth model

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑1 = 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑ℎ𝑜𝑦 ∗ (1 + 𝑔)
Price 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑2 = 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑ℎ𝑜𝑦 ∗ 1 + 𝑔 2

3
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑3 = 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑ℎ𝑜𝑦 ∗ 1 + 𝑔
DCF: Dividend growth model

Price
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑡𝑜𝑑𝑎𝑦 ∗ (1 + 𝑔)
𝑃𝑟𝑖𝑐𝑒 =
𝐾𝑒 − 𝑔
DCF: Dividend growth model
DCF: Dividend growth model
DCF: Dividend growth model

A company's shares are to be valued. Quoted companies

in a similar sector give shareholders a return of 15%, but
unquoted shares attract a risk premium of 5%. Dividends
are expected to grow at 5% pa for two years then at 4%
thereafter. The dividend just paid is $0.60.

What is the market value of a share?

DCF: Dividend growth model

GXG Co is an e-business which needs to raise $3.2m for research and

development. GXG Co could suspend dividends for two years, and then pay
dividends of 25 cents per share from the end of the third year, increasing
dividends annually by 4% per year in subsequent years. Dividends in recent
years have grown by 3% per year.
The company has 10 million $0.5 ordinary shares in issue, has just paid a
dividend of $1.6 million, and has a cost of capital of 9%.
Requirement: Using the dividend valuation model, calculate the value of
GXG Co if this plan were followed, and advise whether this option will be
acceptable to shareholders.
DCF: Discounted future cash flows
DCF: Discounted future cash flows