Presentation Mcf
- 1. MCF 15.03.10 Assignment Group #??? Vi Kwon Dong Zichella Giulio Marina Kuznecova Saida Hakkouni Lucia De La Cruz
- 2. 1. Two types of valuation: Relative Valuation and Absolute Valuation Relative valuation : It is about comparing certain financial ratios or multiples, such as the price to book value, price to earnings, EV/EBITDA, etc., of the equity in question to those of its peers. BUT… based on historical data… Absolute Valuation : It is about the value that generates positive cash flows to the owner calculating the present value of those cash flow (DCF and NPC). BUT… what about DCF as a tool of valuation?
- 3. 2. Discounted Cash Flow (DCF) is really important Of course, it is: Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management and valuation for firms (EV). Two possible choices: Invest (NPV >0) or do not invest (NPV<0) Does the DCF give us a complete view of value for projects ?
- 4. 3. You mostly use the DCF method for older companies Yes! More historical data available make dcf analysis easier to use and more accurate. BUT, companies with deep pockets would prefer to use a wider investment analysis (e.g. Luehrman’s Option Space) DCF is also about cash flows…
- 5. 4. Critical success Factors: Launch product, reach cash flow break even, ensure sales oriented management. Reaching at least the cash flow break even (EBDAT=0) is the key objective for companies (e.g. survival, investors) Sales oriented mgmt will help reaching the CF Breakeven… focusing, for example, on value for customers and cash burn/build rates!
- 6. 5. With cash being king - you want to know your "burn rate" (avg. monthly cash burn) and "runway" (remaining liquidity) Cash Burn Rate : { OPEX + Interest+ Tax + Increase Inventory- ∆ payables and accrued liabilities + CAPEX} average in one month Cash burn basically are negative cash flows: if cash is king, we should focus on those. Runaway : Remaining liquidity / Burn Rate Investors are very interested in knowing the firm’s capacity of facing short term liquidity problems (e.g. Statement of Cash Flows).
- 7. 6. Value: ZYB - a mobile phone backup solution with zero revenue bought by Vodafone Actual cash flows analysis is not “the end of the story”… “ The acquisition of ZYB is a further advance in the implementation of Vodafone's Total Communications strategy which is delivering new revenue growth around fixed broadband, mobile advertising and a rich set of internet services that integrate the mobile and PC customer experience . ZYB fits into this strategy by enhancing the range of communications services Vodafone can provide to its customers” (Vodafone website, underlines added) A good example of an exit strategy…
- 8. 7. Develop an exit strategy towards either a trade sale or an ipo Different approaches to face a drifting and challenging environment (e.g. decrease in value, increasing general risk)
- 9. 8. Typically the CEO should be leading the search for capital and investors Well… it depends… CEO-Entrepreneur, with focus on controllability, would be more likely to lead the search CEO-Manager, with focus in aligning/balancing different interests, would be more likely to cooperate with other internal-external stakeholders of the company
- 10. 9. Investors want to be close (geo) to their investments and longer tradition for VCs in the US. Makes more sense to be in the home market. Proximity has advantages: it is less risky for VCs to be in the same geographical environment as the firm they are investing in (easier to calculate/manage risk). The US historical trend confirms this. BUT there are exceptions: those who invest abroad can benefit from new possibilities and projects (e.g. US VCs investing in Nordic companies). These advantages can more than counterbalance the disadvantages of physical distance.
- 11. 10. Reality can be a bitch Reality challenges us in many ways: Ratios and formulas may be at least “misleading” if used alone… at worst, killers… We struggle to predict future Cash Flows, interest rates, future sales… but things often change in unpredicted ways… Customers (market) matter! As the example of ZYB shows, financial decisions should focus also on customer perceived value: this issue is full of subjectivity but at the same time is extremely relevant. Employees (experience/talent) matter! Especially in implementing and realizing successful IPO/exit strategies
- 12. THANK YOU