Best Practices in Valuation
Prof. Dr. Kjell Nyborg, SFI Senior Chair, University of Zurich
Valuation Techniques in Practice
The Master Class on “Valuation Techniques in Practices” provides an in-depth understanding of valuation methods and techniques relevant for practice. After reviewing the methods most commonly used in industry, it dives into the intricacies of choosing the right inputs for valuations, such as how to think about the appropriate growth rate when calculating the terminal value in a DCF valuation, how to deal with the sensitivity of the WACC (weighted average cost of capital) to leverage. Multiples are also discussed. The most commonly used valuation methods will be applied in an interactive class case study based on a real case. This will highlight the benefits and shortcoming of the valuation methods used.
Current Situation
The valuation of firms, projects, and transactions is one of the most fundamental processes in business and finance. It directly affects investment decisions and the allocation of resources in the economy. As a result, there is a vast amount of academic work on the topic. This material is communicated through numerous textbooks in corporate finance and valuation and widely taught at all levels of higher education. However, academics and those that do valuation for a living do not always agree over the implementation, or relevance, of theory. This raises questions about what academics teach and the effectiveness of higher-level finance education. There are also questions about the valuations that the professionals come up with, because they are intermediaries in the capital allocation process. There is little systematic knowledge on the favored techniques and the factors that affect the choices made by valuation professionals. How important is their level of education, or their professional subgroup? How important is the purpose of the valuation? Are there concerns with how valuation techniques are implemented in practice?
Objective
The most established methods used to value a project or a company are relative valuation ('multiples') and multi-period models. Finance textbooks emphasize the latter, and especially the technique of discounted cash flows (DCF). Approaches differ on several levels: by the inputs one needs to consider, by the caveats one has to be aware of, and, most crucially, by the results one gets. Using a recent survey, we will start by mapping out which of these techniques valuation professionals typically use and how they do so. We will then raise issues with respect to the implementation of valuation techniques and especially on the WACC and terminal value in a DCF valuation. The choice of the comparables set, in a multiples or DCF valuation, will also be discussed. The most commonly used valuation methods will be applied in an interactive class case study based on a real case. This will highlight the benefits and shortcoming of the valuation methods used.
Target Audience
The Master Class is best suited for those with a background in valuation, either from the financial industry, consulting, or the corporate sector. Participants will be expected to be familiar with basic concepts in valuation such as DCF, cost of capital, multiples, and, at some point in their career, have taken an advanced course in corporate finance.
SAQ Recertification
This Master Class is an acknowledged SAQ recertification measure for the CWMA and CCoB profile and comprises four learning hours.