Dynamic Company Valuation

Nov 26, 2007


Since the key parameters in valuation model are mostly influenced by market behaviour, then it is important to update some relevant market data in regular basis to see how they affect the analysis. The relevant market data may include risk-free rate, stock price and market index that are able to indicate changes in value.

This model introduces manipulation of data by automatically changing some market data via the tool of external data import in Excel and some VBA simple codes for refreshing the Web Query. The main goal is to adjust calculation in Beta and WACC in the framework of company valuation and also for Option and Bond analysis.

In projecting financial statement, the historical data of the last two year operation is used to find the assumptions in the form of financial ratios that are normally corresponded to Sales. Then, the average of the last two year ratios can be used as the basic assumptions. Sales Growth ratio can be used as a look-up parameter in sensitivity analysis.

Sensitivity models are used by utilising two important tools in Excel, i.e., Data Tables and Graphs. Both tools are set to show visual changes in value after altering the growth ratio to some levels. This model also introduces sensitivity analysis of changes in financial ratios for the goal of predicting the possibility of bankruptcy. Traditional financial ratio techniques used are for Altman Bankruptcy model and Chesser Loan Surveillance model to be visually compared with the equity value and stock price resulted from the Free Cash Flow valuation.

The key analysis in this model is the Free Cash Flow valuation that has been as the important technique explained in the course and from the text. The method follows the that has been explained in the class using the No-Negative Cash and Debt as the Plugs. Some modification is tried to be applied by using Bonds as the plug, where the Bank Loans is calculated based on the bank loans to bonds ratio. The sum of both is the Long-term Debt.

Using bonds as the plug, the plan is to set of a Bond Portfolio for covering future financing in the projection. Then, the analysis refers to Net Present Value and Portfolio Duration that may anticipate in the future. As a bond issuer, the company should expect the lower value and duration.

[Sorry, it's a premium spreadsheet]

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