Part II
CORPORATE FINANCE TECHNIQUES
During the early stages of a corporate financier’s career, one of the most frequent tasks he will be faced with is the valuation of a company, a division or its securities. Valuation underpins the price at which an Initial Public Offering (IPO) is launched. Valuation is vital in determining the price to offer for a business in an acquisition or merger. Valuation of the different securities offered in a Management Buyout/Leveraged Buyout (MBO/LBO) can mean the difference between a completed transaction and a busted deal.
Part II of the book introduces the main tools used in the daily life of a corporate financier: the tools needed to understand how to value businesses and their securities. These chapters are concerned with the techniques used to value businesses for the transactions listed in Part I, as well as for determining whether securities are accurately priced in the secondary market. Chapter 8 presents the most common methods used to value securities: cash flow based and comparables or relative valuations. Chapter 9 covers the determination of the discount rate used in cash flow based valuations, while Chapter 10 introduces the concept of Shareholder Value Added or economic profit.
The following chapters assume that the reader is familiar with corporate financial statements – i.e., the balance sheet, and profit and loss statement. We also assume a basic understanding of the principles of the concept of present value.