Course dates
By attending this course, you will have a thorough understanding of:
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How decisions about the structure of the balance sheet are made
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How to model cash flows that are used in valuation
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The effect of the timing of cash flows on value
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What sensitivity analysis can do in developing an assessment of risk
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How to measure the cost of capital
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How valuation ratios can be used to value mineral reserves
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How to use valuation ratios when there are no earnings
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How to use comparative company financials for valuation
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How to measure beta
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How the finite life of a mining project impacts valuation
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How option valuation methodology can be used for project appraisal
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The value of the option to expand, defer or close
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The particular valuation techniques for reserve based businesses
Summary of course content
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Equity valuation by discounting dividends
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Costs of debt and equity
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Impact of tax and financial distress costs
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Capital Asset Pricing Model (CAPM)
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Calculating beta and the risk premium
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Measuring the required capex
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Preparing the cash flows
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Methodologies using EBIT, EBITA, EBITDA, EBITDAX
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Alternative multiple-based valuation ratios
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The valuation of flexibility
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The option to defer
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Valuing reserves in the ground using comparables
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Using the option valuation methodology for mine expansion
Methodology
The training course is wholly interactive and participants will be fully involved through discussion, exercises and case studies.
Computer-based exercise
Participants should bring laptop computers with Microsoft Excel for exercises and case studies. A calculator would also be useful.
Who should attend?
The course will be of value to professionals in the following areas:
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Executives and managers
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Professionals in all functions seeking to enhance their financial knowledge
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Investment and commercial bankers (especially those with a single product specialisation needing to understand alternatives)
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Equity and fixed income investment managers
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Investment analysts
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Credit analysts
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Treasury managers and staff
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Lawyers
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Accountants
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Company brokers and advisers
Supporting publications
DAY ONE: DCF valuation techniques
Investment appraisal techniques
- Shareholder value as a key management objective
- Strategic financial objectives
- Appraising investment projects
- Alternative measures of value
- Payback period, discounted payback period, NPV, IRR
- Introductory sensitivity analysis
- Using Excel shortcuts
- Organising the spread sheet to minimise errors
- Spread sheet disciplines
- Monte Carlo simulation techniques in sensitivity analysis
Equity valuation by discounting dividends
Dividend discount models
Gordon growth model
Multi-stage dividend discount models
Weaknesses in these models
Using the growth perpetuity to value cash flows
Cost of capital
- Capital Structure Theory: Modigliani and Miller
- Enterprise value concept
- Impact of tax and financial distress costs
- Cost of debt and equity
- Weighted Average Cost of Capital (WACC)
Case study: calculating the benefit of the tax shield of debt
Capital Asset Pricing Model (CAPM)
- How CAPM works
- How CAPM can be used to identify the cost of equity
- The impact of gearing on the cost of equity
- Relationship to capital structure
- Model inputs and sensitivity
- Calculating beta and the risk premium
- Sources of error in the model
DAY TWO: Cash flow modelling
Identifying the key drivers in the business model
- Forecast of sales: the assumptions
- Identifying the cost structure
- Computing the working capital needed
- Measuring the required capex
- Analysing capex between maintenance and development
- Preparing cash flows
- Terminal value assumptions and growth in particular
- Testing the reasonableness of the terminal value assumption
- Non-operating assets and impact on valuation
- Obtaining an equity value using WACC
Applying WACC in practice
- Review of WACC as a valuation tool
- Preparation of free cash flows
- Alternative terminal value calculations
- Iteration using "goal/seek"
- Selecting the right beta
- Creating the sensitivity matrix
Case study: valuation involving preparation of cash flows, calculation of WACC, estimating enterprise value and hence equity value
Deriving the financial statements from the cash flow projections
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Computing depreciation
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The tax function and deferred taxation
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Working capital
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Seasonal factors and working capital
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Monthly cash flow forecasting
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Debt financing as an overlay
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The revolving working capital facility
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Deriving the P&L accounts and balance sheets from the cash flow projections
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Modifying WACC to account for changes in capital structure
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Hedging the output price
Multiples based valuation methodologies
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The key valuation ratios
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"Proof" of the validity of multiples-based valuation tools
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Characteristics of the earnings forecast
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Comparable company analysis
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Enterprise ratios and their advantages over conventional ratios
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Methodologies using EBIT, EBITA, EBITDA, EBITDAX
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Alternative multiple-based valuation ratios
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Price/book, price/sales, price/pop and other ratios
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Accounting scams – the Xerox case
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Weaknesses in the model
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Reconciling a multiple-based valuation to WACC
Case study: Freeport Phelps Dodge valuation
DAY THREE: Option valuation methodology
Valuing reserves in the ground using comparables
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Identifying value from companies with comparable assets
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Using project financing techniques to evaluate mineral reserves
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The impact of commodity price hedging on values
Real options
- Projects as options
- The valuation of flexibility
- Introduction to option valuation methodology
- Payoff charts
- Put and call option parity
- The binomial model
- Black and Scholes
- Volatility measurement
The option to defer
- The value and cost of delay
- Impact of the time horizon: limited exploitation license life
- Using option valuation methodology to value the delay option
- Valuing reserves in the ground before extraction
- Value in uneconomic discoveries as an option
- Volatility of the underlying commodity
Other option elements: expansion and closure
- Using the option valuation methodology for mine expansion
- Valuing the option to walk away
- Using existing market values to obtain valuation benchmarks
- Using a combined approach to valuing producing assets and discoveries
Course summary and close
InterContinental Grand Stanford Hotel, Hong Kong, Hong Kong
This programme takes place on a non-residential basis at the InterContinental Grand Stanford Hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
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Paul Richards
Paul Richards graduated from Cambridge University in mathematics and has a Masters degree in business administration from London Business School. He is also a CFA charter holder, an Associate of the Chartered Institute of Bankers, a Member of the Association of Corporate Treasurers and a Fellow of UKSIP.
Paul has more than 20 years investment banking experience specialising in domestic and international corporate finance at UBS (Warburg), HSBC and Map Securities (part of Skandia Insurance and Mapfre, Spain). He was also the chief executive of the London merchant banking operation of Credit Industriel et Commercial, a major French banking group.
As a result of this experience, Paul has extensive first hand experience of: Mergers and acquisitions; IPOs; bond issues; secondary market issues; privatisation; debt syndications; corporate treasury; equity valuation; investment analysis; security and derivative valuation; private equity; modelling; corporate governance; and compliance.
Paul won the 2004 Wincott Foundation Prize for his article "Lessons in shareholder value" on the boom and bust in new economy stocks, published in Professional Investor (the journal of the UK Society of Investment Professionals - the UK member society of the CFA Institute). He has taught MBAs and Masters to Finance students at Cass and Cranfield Business Schools for more than 12 years in a range of financial disciplines; and has trained staff at major City houses and in banks on different continents.
Courses run by this instructor
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Course dates