Georgetown University

Corporate Valuation and Modeling

This course covers advanced valuation topics such as the free cash flow and multiple approaches to equity valuation, ​as well as​ the use of accounting and market data to measure and manage the value of the firm. 

Student Learning Objectives

By the end of this course you will be able to: 

  • Describe and explain two fundamental drivers of corporate value: Return on Invested Capital (ROIC) and Organic Revenue Growth
  • Describe and discuss operating performance of the entire firm and of individual business modules
  • Rearrange the balance sheet to find invested capital
  • Rearrange the income statement to find net operating profit after tax (NOPAT)
  • Analyze a firm’s historical performance through traditional ratio analysis and through ROIC decomposition
  • Build an integrated valuation model using WACC method discount cash flow (DCF) analysis to value a publicly traded company and its equity
  • Forecast key variables
  • Develop pro forma financial statements
  • Determine the appropriate forecast period
  • Estimate continuing value
  • Derive a firm’s weighted average cost of capital
  • Derive and discount estimated cash flows
  • Discuss and describe nuances of continuing value estimation
  • Perform sensitivity analysis to pinpoint key value drivers for the firm
  • Examine the robustness of the valuation model both mechanically and economically

Click Here for Video Transcript

[HOPEFUL MUSIC]

DAVID ALLEN AMMERMAN:We use the word value on a near-daily basis, especially in finance. For example, we might talk about the value of a college education or we might choose to support businesses or charities that share our values. Or we might even describe taking a vacation and spending time with family as having value. But what do we actually mean by value? Dictionaries generally define value as the relative importance a person places on something. In virtually all contexts, value is subjective. It is driven by our beliefs about an object or experience we hope to gain and our beliefs about the object or experience given up.

When we consider purchasing an asset, we must consider the benefits we believe we will gain from the asset versus the costs we believe we will incur by purchasing the asset. But what is the basis of our beliefs? When the tulip markets of the 1630s Amsterdam valued a single tulip bulb at the equivalent of $60,000, U.S. dollars in today's money, was it an accurate reflection of beliefs about tulip bulbs and the money that was used to buy them? When managers at Coca-Cola decided New Coke was a value-creating project, did that make it so? When the market priced pets.com at $11 per share at its IPO, were the beliefs about the future viability of the company accurate or realistic?

Hindsight is 20/20, so we can clearly look at these examples and recognize that the beliefs that led to such decisions and valuations were faulty. Somehow, belief did not reflect reality. And eventually reality won. Our goal in finance is to figure out how to best allocate monetary resources. And to that end, we want to develop beliefs about the costs and benefits of assets that are a true reflection of reality or at least as true as we can get. This requires a systematic approach for making the subjective more objective. Rather than relying solely upon our subjective feelings and emotions, we want to incorporate objective observations into our decision making. That is what this course is all about.