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Distressed Debt Analysis: Strategies for Speculative Investors by Stephen Moyer

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OVERVIEW OF THEVALUATION PROCESS

Up to this point, the concepts of firm value and capital structure have been discussed without worrying about how they are derived. The ever-present Boxco behaves like so much Silly Putty: its asset value box expands and then shrinks, and then the boxes on the other side (debt and equity) are stretched or chopped down to conform. This is a conceptually sound construct because, as a general proposition, capital structure must, in the long run, bear some relation to asset value. The dependence or causality is from asset value to capital structure, not vice versa.

In Chapter 3, this construct was used to depict ...

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