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DCF and Comparables Valuation
Week 1
Design Research
4 videos, 1 reading
Video: The Interaction Design Specialization
20 m
Video: Introducing Elizabeth Gerber
40 m
Video: Who, What, Where, When and How People Work
35 m
Video: Michael Chapman of IDEO on Interviewing
20 m
Reading: Slides
30 m
Graded: Final Quiz: Design Research
5 Questions
Week 2
Ideation
2 videos
Video: The Interaction Design Specialization
20 m
Video: Introducing Elizabeth Gerber
40 m
Graded: Cumulative Quiz
4 Questions
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DCF and Comparables Valuation

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DCF and Comparables Valuation

About this course

Introduction

This course will teach you how to build a complete, working discounted cash flow (DCF) model in Excel from scratch, using a real case study, industry best practices, and sensitivity analyses. DCF analysis is both academically respected and widely used as a primary method of valuation. Many finance interview questions specifically test a candidate’s understanding of both the academics and mechanics behind the DCF.

“Comps” analysis is the quickest, most widely used valuation methodology, and fundamental part of the core valuation skill set of investment bankers and finance professionals. In this course, trainees learn how to select and “scrub” comparables, pick the right multiples and build dynamic comps models in Excel from scratch, using real case studies, industry best practices, and sensitivity analyses.

Course benefits:

By the end, you will have mastered financial and valuation modeling and developed the core investment banking skill set that will give you a competitive edge in interviews and on the job.

  1. DCF modeling overview

Building on the knowledge gained from the financial statement modeling course, you will be introduced to valuation analysis in general, and the DCF model in particular. You will learn step-by-step DCF modeling, using the free cash flows already projected in the financial statement modeling case study.

Along the way, you will learn how to estimate the weighted average cost of capital (WACC) in the real world, and build several commonly used approaches to calculating terminal value. Finally, we will use data tables to analyze a broad range of scenarios given different assumptions.

Modeling free cash flows (FCF)

  • Unlevered vs. levered FCF
  • Capitalizing inappropriately classified expenses
  • Handling working capital items, deferred taxes and long-term accruals
  • Handling stub periods and midyear adjustments
  • Integrating synergy assumptions into the DCF model
  • Common pitfalls – enterprise vs. equity value, unlevered vs. levered FCF

Discounting the cash flows

  • Deriving the cost of debt
  • Derive the cost of equity using CAPM
  • Estimating the weighted average cost of capital (WACC)
  • De-levering and re-levering beta
  • Determining the optimal WACC
  • Avoiding inconsistency between the FCF and discount rate

Estimating terminal value

  • Perpetuity approach
  • EBITDA multiple approach
  • Common pitfalls

From enterprise value to equity value per share

  • Calculating net debt and treatment of debt equivalents such as preferred stock, convertible securities , capital leases , and minority interest
  • Calculating options and convertible securities using both the standard and treasury stock methods

Sensitivity analysis

  • Using data tables to analyze a broad range of scenarios given different assumptions
  1. Trading comparables overview

“Comps” analysis is the quickest, most widely used valuation methodology, and fundamental part of the core valuation skill set of investment bankers and finance professionals. In this course, trainees learn how to select and “scrub” comparables, pick the right multiples and build dynamic comps models in Excel from scratch, using real case studies, industry best practices, and sensitivity analyses.

  • Learn to select appropriate comparable companies by evaluating operational, financial, size, and other similarities
  • Set evaluation benchmarks & select comparable companies
  • Gather appropriate financial history and projections
  • Normalizing operating results and calculating LTM operating results to reflect nonrecurring charges and stock option expenses
  • Standardize various expense classifications including FIFO to LIFO inventory accounting
  • Calculate shares outstanding using the treasury stock method
  • Input financial data & calculate and interpret financial and market ratios
  • Presenting trading comps by structuring output schedule
  • Selecting key valuation multiples using the VLOOKUP function and generating multiple tables