Financen

Business Analysis to Valuation Activities involved in a business 1. Operating activities involve managing the operating assets, which includes activities related to the production and sale of goods and services (e.g., sales, receivables, inventory, and payables management). Objective of decisions is to manage value created by existing assets and eventually manage growing opportunities. 2. Investing activities involve acquiring and disposing of producing assets, the assets used to produce and support the goods and services provided (e.g., buildings, equipment, know-how). Decisions objective is to maximize shareholder value. 3. Financing activities involve raising capital through equity or debt issuances & the related payments to capital providers such as debt payments, dividends, & share repurchases. Decisions objective is to maximize shareholder value. Financial Statements - Information about firm assets, expected cash flows (return) that they can generate and the level of risk (discount factor); 1.BS: firm assets, asset growth, strategy. 2. IS: sources of income, income growth, strategy. 3. CFS: changes in cash flow & reasons for them Valuation -Discounted cash flow valuation: relates the value of an asset to the present value of expected future cash flows on that asset. -Relative valuation: estimates the value of an asset by looking at the pricing of 'comparable' assets relative to a common variable such as earnings, cash flows, book value or sales. -Contingent claim valuation (real options): Uses option pricing models to measure the value of assets that share option characteristics. Some of these assets are traded financial assets like warrants, and some of these options are not traded and are based on real assets – projects, patents and oil reserves are examples. Forecasted Financial Statements 1. Security Valuation – free cash flow and residual income models require estimates of future financial statements 2. Management Assessment – forecasts of financial...