Euromoney Audit Training

Course objectives

'Advanced Financial Analysis and Valuation Modelling' begins by reviewing lessons on valuation, risk assessment and forecasting that can be derived from the financial crisis. A lecture and discussion examines mistakes made in valuing sub-prime loans compared to other famous valuation errors. Review of valuation lessons provides context for other subjects in the course.

Summary of course content

• Valuation lessons from the current financial crisis
• How structured financial models can be created that clearly define risks and value without being overly complex
• The fundamental factors that underlie valuation and how can they be used in practice
• What lies behind multiples such as the P/E and the EV/EBITDA ratios and how can these multiples be used in valuation
• How to effectively present risk analysis in valuation analysis models
• Whether Monte Carlo simulation and mathematical techniques can realistically be used to assess risk and compute value
• The valuation of debt and measurement of debt capacity to provide alternative ways to value investments
• The creation of models specifically used to evaluate LBOs, project finance and M&A

Methodology

Case studies, hands-on analysis and template models will be used as the primary teaching tools in the programme. If participants are interested in practical mechanics of excel (macros, combo boxes, offset and indirect functions etc.) these can also be discussed after the course. All delegates are required to bring their own laptop to facilitate inclass study.

This course will make extensive use of modelling exercises in Excel^®

Who should attend this training course?

• Corporate Finance / Corporate Treasury
• Capital Markets
• Audit / Product Control / Risk Management / ALM
• Research & Analysis
• Sales & Trading
• Investment Management
• Origination
• Securitisation / Syndication
• Structured Finance
• Money Markets / Repo
• Systems Programming
• Funding
• Government / Agency Funding & Investment
• Regulation / Compliance / Documentation

Supporting publications

 

DAY ONE: Multiples and discounted cash flow

Key themes and concepts

• Measuring and managing risk as well as translating risk into valuation for decision making will be emphasised along with strategic and economic drivers of value
• Mechanical aspects of valuation
• Understanding financial ratios used in valuation
• The appropriate use of multiples (P/E vs. EV/EBITDA)
• Choosing among alternative techniques and assuring that the valuation techniques make sense

Valuation fundamentals and mechanics

General categories of valuation models will be introduced and a foundation in valuation mechanics will be established. The discussion will focus on how value is created by a company.

• Real sources of value - cash flow, discounting and growth
• Valuation of risky bonds and excel short-cuts
• Derivation of P/E ratios and real world discounting problems
• Fundamental basis of DCF and major problems with the DCF

Valuation using multiples

Participants work with multiples in developing valuations. The discussion and case studies focus on which multiple is most appropriate for alternative business circumstances.

• Valuation using multiples
• Examples of multiples
• Reconciliation between alternative multiples
• Appropriate multiples in different circumstances
• Problems with multiples

Valuation using discounted cash flow

Participants learn DCF valuation in theory and practice.

• Construction of simple valuation model for computing DCF
• Problems with valuation ranges in the DCF
• Use of multiples in terminal value
• Valuation from earnings growth

Case study on implementation of valuation

Real world issues in applying the DCF model

Participants learn how to deal with real world complications that arise in applying the DCF model.

Corporate model case study

• Construction of working analysis, debt structure and financial statements
• Calculation of debt and cash plugs
• Use of history in forecast
• Scenario and sensitivity analysis
• Template corporate model

DAY THREE: Risk analysis, valuation and modelling

The next module of the course covers risk analysis as well as options pricing exchange rate risk, interest rate risk and debt management. Traditional risk analysis tools and mathematical approaches to measure risk are examined. Debt management issues include credit analysis, forwards, swaps and financial engineering. The final subject is computation of value at risk for foreign exchange and interest rate risk.

Sensitivity analysis, scenario analysis and tornado diagrams in valuation

The most time spent on valuation analysis is developing the economic assumptions that form a base case. Evaluating risks and developing sensitivity analysis should be an integral part of valuation. A case study is used to develop economic assumptions and to demonstrate use of sensitivity analysis, break-even analysis and tornado diagrams.

• Risk analysis of economic drivers
• Break even analysis and credit
• Sensitivity analysis
• Scenario analysis
• Tornado diagrams

Cost of capital and adjusted present value (PV)

Application of cost of capital is discussed with emphasis on discount rates in real world circumstances. The final topic addresses adjusted PV where all-equity cost of capital is applied.

• Survey of cost of capital techniques
• Estimation of beta and working with stock prices
• Details of computing weighted average cost of capital in valuation
• Risk neutral valuation, and arbitrage pricing model
• Adjusted net present value

Monte Carlo simulation

Options can be valued with Monte Carlo simulation and binomial trees. Monte Carlo simulation can also be  used to compute the probability of default in credit analysis. Monte Carlo simulation involves developing time series analysis and incorporating scenarios in a financial model. 

Monte Carlo simulation exercise

• Time series analysis parameters
• Mean reversion, price boundaries and equilibrium
• Application of Monte Carlo simulation
• Computation of probability of default with alternative structural enhancements

DAY FOUR: Alternatives to DCF and multiples - leveraged buyout (LBO), structured finance and M&A valuation

The final day involves case studies that investigate valuation issues associated with LBOs, structured finance and M&A. Issues include modelling cash flow waterfalls in LBOs and structured finance as well as accounting and economic issues associated with valuing M&A transactions.

Valuation in structured finance

The debt capacity in valuation provides an alternative way to assess risk and make valuations. We review the theory and practice of using structured finance as an alternative to DCF.

• Overview of valuation models that do not require estimation of WACC or terminal growth
• Theory of using debt capacity to assess risk and value
• Alternative forms of structured finance ¡V project finance, LBOs and asset backed securities
• Construction of simple structured finance model

Valuation in LBOs

LBO and project finance valuation involve computing the present value of free cash flows and allocating that value to alternative debt and equity instruments. Issues include:

• Building an LBO model
• Valuation with equity and project IRR
• Debt capacity and equity valuation

LBO case study

M&A case study

Valuation of M&A transactions involves valuing synergies and considering accounting and tax issues.

• M&A terms
• M&A transaction and accounting modelling
• M&A consolidation and earnings accretion/dilution

Case study

• Ed Bodmer

  Edward Bodmer has created innovative forward pricing, productivity measurement and investment valuation software for consulting clients throughout the United States. He has taught energy economics and finance throughout the world, and formulated significant government policy and corporate strategy in the U.S.
  
  Mr. Bodmer's consulting clients include investment banks, commercial banks, research institutions and government agencies on a wide variety of complex valuation and advisory matters. He has constructed a unique framework for electricity price forecasting and valuation using production cost modelling techniques combined with option price theory and Monte Carlo simulation.
  
  Mr. Bodmer is also an adjunct professor at leading University where he teaches courses in microeconomics. Along with his practical experience that covers a multitude of major advisory projects, he has taught specialised courses in financial modelling, electricity pricing, option valuation, mergers and acquisitions and contracting to investment banks, commercial banks, industrial corporations and electric utility companies.
  
  Mr. Bodmer was formerly Vice President at the First National Bank of Chicago where he directed analysis of energy loans and also created financial modelling techniques used in advisory projects. He has used the models in providing expert testimony on subjects ranging from capital structure to investments in multi-billion dollar nuclear plants to complex valuation of new investments.
  
  Mr. Bodmer received an MBA degree specialising in econometrics (with honours) from the University of Chicago and a BS degree in finance from the University of Illinois (with highest university honours). He has written many articles and is in the process of completing a textbook on valuation of electricity assets.

  Courses run by this instructor

  • Financial Modelling for Mergers and Acquisitions

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

Investment Banking

20-22 Sep 2010 (Singapore, Singapore)

'Investment Banking' aims to provide practical "hands-on" experience in giving corporate advice and transaction structuring.

Financial Modelling for Mergers and Acquisitions

8-11 Nov 2010 (Hong Kong, Hong Kong)

'Financial Modelling for Mergers and Acquisitions' is a hands-on course that offers practical instruction on how to model economic, financial and strategic issues associated with M&A.

Corporate Valuations - Techniques and Modelling

13-16 Dec 2010 (Singapore, Singapore)

The valuation of companies is fundamental to the peration of the capital markets. It forms the basis of share trading and corporate finance activity, including capital raising, mergers, acquisitions, demergers and disposals. The ability of market participants to identify under or overvalued companies drives portfolio outperformance and the creation of shareholder value.

Financial Analysis Forecasting

1-3 Nov 2010 (Singapore, Singapore)

'Financial Analysis Forecasting' is designed to provide you with a working knowledge of the principles and practices of the financial management of companies and the financial analysis of leveraged buy-outs.

Financial Modelling in Excel

14-17 Sep 2010 (Hong Kong, Hong Kong)

The principal aim of 'Financial Modelling in Excel' is to enable participants to use Microsoft Excel to prepare logical and easy-to-use financial models to support transactions, forecasts and planning for ongoing business needs.

Technical Trading: Practical Applications of Technical Analysis

24-26 Nov 2010 (Hong Kong, Hong Kong)

Technical analysis is used by traders and investors to identify patterns of market behaviour. This course will review the basics of technical analysis and the practical challenges of using that analysis to make money out of the markets on a consistent basis according to the individual trader’s strengths and weaknesses. Trading based on multiple time-horizon classical bar charting is the initial starting point, but all the main forms of technical trading will be covered.

Private Equity and Leveraged Transactions

13-15 Dec 2010 (Hong Kong, Hong Kong)

This comprehensive course, as two separately bookable modules, will introduce participants to the essential basics of private equity and venture capital.