Course dates
The four day course will provide delegates with a thorough understanding of the:
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Theory and Modelling of Corporations and Project Finance Investments.
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Comparison of Useful Ratios in Project Finance and Corporate Finance.
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Alternative Risk Assessment Techniques in Corporate and Project Finance.
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Common Valuation Mistakes in Valuation of Stocks and Projects.
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Structure and Creation of Corporate Models.
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Structure and Creation of Project Finance Models.
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Complexities in Analysis of Terminal Value.
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Complexities in Valuation and Credit Assessment of Project Financings.
Methodology
Added Sessions on Financial Modelling in Excel. The course uses case studies, hands-on analysis and template models as the primary teaching tools. However, in teaching this course in the past, we have found that some participants are interested in practical mechanics of excel (macros, combo boxes, offset and indirect functions). Added sessions will be held after 5:00 PM to provide instruction on many practical excel topics.
Course Background
Other than the instruction in how to build, use and analyze financial models, participants in the course will receive a comprehensive suite of financial modeling software on a compact disk that includes a number of template models and excel addins. The software consists of corporate models that accept historic financial data and generate alternative valuation measures; M&A models that consolidate two companies using alternative financing assumptions and produce accretion and dilution estimates; project finance models that measure the effect of alternative elements in a cash flow waterfall including debt service reserves, junior debt, covenants, defaults and pre-payments; LBO models that measure the debt capacity of a transaction; option pricing models that account for alternative structures; and debt valuation spreadsheets, Monte Carlo simulation models, tornado diagram and sensitivity analysis.
Supported by:
Day 1
Valuation in Corporate and Project Finance
Overview
This part of the course introduces key themes and concepts that will be used throughout the five-day session. Measuring and managing risk as well as translating risk into valuation for decision making will be emphasized along with strategic and economic drivers of value. Valuation covers mechanical aspects of valuation, the meaning of financial ratios used in valuation, appropriate use of multiples (P/E versus EV/EBITDA), choosing among alternative techniques and assuring that the valuation techniques make sense.
Topics Include:
Agenda
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Valuation Overview.
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Discounted Cash Flow.
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Cost of Capital and Adjusted Present Value.
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Sensitivity Analysis and Scenario Analysis.
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Case Study of Valuation and Financial Modelling (IPO case).
Overview of Course and Major Themes
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Tension between judgment and quantitative analysis.
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Use of free cash flow in decision making versus earnings comparisons.
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Importance of models in risk assessment and decision making.
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Conflict between enterprise valuation and equity valuation.
Financial Ratios in Corporate Valuation
Overview
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Financial Statement Review.
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Financial Indicators of Value.
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Price Earnings Ratio, Return on Investment and Value Creation.
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Free Cash Flow.
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Case Study.
Corporate Valuation Overview and Mechanics
Before delving into the details of valuation models, 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.
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Alternative Valuation Techniques.
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Discounting in Practise.
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Valuation of Risky Bonds.
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Derivation of P/E Ratios.
Corporate Valuation Overview and Modelling
In this section participants learn the state of the art in valuation theory and practice. The discussion and case studies focus on which valuation method is most appropriate for alternative business circumstances.
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Valuation Using Multiples.
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Valuation Using Discounted Free Cash Flow.
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Rationale for Alternative Terminal Value Approaches.
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Valuation from Earnings Growth.
- Case Study on Implementation of Valuation.
Cost of Capital and Adjusted Present Value
After analyzing valuation techniques, application of cost of capital is discussed with emphasis on application of discount rates in real world circumstances. The final topic addresses adjusted present value where all-equity cost of capital is applied.
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Survey of Cost of Capital Techniques.
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Cost of Capital Used in M&A.
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Weighted Average Cost of Capital.
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Data tables and Valuation.
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Application of CAPM.
- Adjusted Net Present Value.
Day 2
Valuation of Debt and Equity in Project Finance
In the second part the course addresses valuation in project finance applications. Project finance is a unique financial product with significant financial management implications related to risk analysis, debt sizing, contract valuation and options analysis. Topics included in the project finance part of the course include:
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Structured Finance Overview and Terms.
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Debt Structuring and Debt Sizing in Project Finance and Leveraged Buyouts.
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Contract Valuation in Project Finance.
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Probability of Loss, Loss, Given Default and Yield Spread.
Project Finance Overview and Terms
The discussion of project finance begins with introductory comments about the costs and benefits of project finance with an emphasis on measuring and valuing risk. A case study is used to introduce a number of subjects
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Overview of Project Finance Terms.
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Applications and Contracts in Project Finance.
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Project Finance Case Study.
Valuation and Credit Analysis in Project Finance
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Overview of Project Finance Models.
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Free Cash Flow and Equity Cash Flow.
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Equity and Project IRR.
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Debt Service Coverage and LLCR.
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Debt Sizing Case Study.
Debt Structure and Waterfalls in Project Finance Debt
Debt structure in project finance can be quite complex and affected by a number of credit enhancements including covenants, debt service reserves, waterfalls and contracts. Credit enhancements are addressed using a case study and a comprehensive project finance model template.
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Credit Enhancements in Project Finance.
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Debt Service Reserves.
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Project Finance Covenants.
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Senior and Subordinated Debt.
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Liquidated Damages.
- Case Study of Debt Valuation.
Valuation Case Study in Project Finance
After working through project finance issues, participants work through a comprehensive case study to value a project and determine the credit quality of the debt tranches. The case includes establishing economic drivers, revenues and expenses and the financial structure of the project. Case Review
Day 3
Corporate Modelling
The third part covers financial modelling for valuation. Topics covered in the second day include:
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Modelling Overview and Major Themes.
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Corporate Financial Model Structure and Objectives.
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Design and Building of a Corporate Model from A to Z.
Corporate Model Structure
Forecasting models are the centrepiece of most valuation, merger and acquisition and project finance analyses. Therefore, the course begins with by establishing a solid foundation in modelling. Some of the common errors made in valuation from corporate models will also be discussed. The errors do not address mechanical aspects of the model but rather conceptual and logic mistakes from a business perspective. In discussing model structure, the course covers:
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Model Objectives.
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Review of Actual Models
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Mistakes in Modelling (base case definition, ignoring financial ratios, capital expenditure consistency, growth rates, business cycles).
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Model Structure for Alternative Transactions (corporate models, project finance models, leveraged buyout models and merger and acquisition models).
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Model Layout (inputs, working analysis, debt structure, financial statements).
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Financial Statement Analysis for Modelling.
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Model Complexities (depreciation, taxes, circularity, minority interest, deferred taxes).
Corporate Model Structure
So as to become proficient in interpreting financial statements and financial models and in order to be comfortable in using template models, participants will construct a corporate model from A to Z. The model exercise includes a discussion of spreadsheet conventions such as the positive number convention, organization of spreadsheets, use of range names and construction of “cork screw” accounts.
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Objectives of Well Designed Models.
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Model Organisation (sheet order, repeating inputs, sheet colours, sheet columns).
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Spreadsheet Conventions (positive number, switches, cork-screws, switches).
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Simple formulas (formula length, max and min statements, range names).
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Model Documentation (macro names, column titles, units).
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Auditing and Error Checking.
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Model Construction Case Study.
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Construction of Working Analysis, Debt Structure and Financial Statements.
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Calculation of Debt and Cash Plugs.
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Use of History in Forecast.
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Scenario and Sensitivity Analysis.
- Template Corporate Model.
Day 4
Project Finance Modelling
The fourth part covers financial modelling for valuation. Topics covered in the second day include: After the introductory discussion, participants construct a basic project finance model to become familiar with the structure of a project finance model, equity cash flow and free cash flow. The model is then used to demonstrate how interest during construction, multiple equity sources and target debt service cover can be added to a model. Once the fundamental model is built, it is used in the context of simple applications involving debt capacity, contract pricing, debt structuring, break-even analysis and probability of default. Construction of a simple model involves the following:
Basic Mechanics of Project Finance Models
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Separation of construction period from operating period.
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Sources and uses of funds statement during the construction period.
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Cash flow, net income, equity balance, construction financing and income taxes.
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Internal rate of return on the project and central concept of free cash flow.
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Construction of a balance sheet and use of a balance sheet in auditing the model.
Project Finance Model Accounting and Financing
Use of Project Finance Model Measurement of Debt Capacity
Course summary and close
Harare Hotel, Harare, Zimbabwe
This programme takes place on a non-residential basis at a central Harare 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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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
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.
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Course dates