March 2024
Beginner to intermediate
304 pages
4h 14m
English
Content preview from The Little Book of Valuation, Updated Edition
Chapter Three
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
Chapter Three
Yes, Virginia, Every Asset Has an Intrinsic Value: Determining Intrinsic Value
IMAGINE YOU ARE AN INVESTOR LOOKING to invest in a share of Kraft Heinz (KHC), a food processing company with some of the most recognized brand names in the world. Based on the information that you have on the company right now, you could estimate the expected cash flows you would get from this investment and assess the risk in those cash flows. Converting these expectations into an estimate of the value of KHC is the focus of this chapter.
Value the Business or Just the Equity?
In discounted cash flow valuation, you discount expected cash flows back at a risk-adjusted rate. When applied in the context of valuing a company, one approach is to value the entire business, with both existing investments and growth assets; this is often termed firm, or enterprise, valuation. The other approach is to focus on valuing just the equity in the business. Table 3.1 frames the two approaches in terms of the financial balance items introduced in Chapter 2.
Table 3.1 Valuation Choices
| Measure | Explanation | |
|---|---|---|
| Assets in place | ||
| + | Growth assets | |
| = | Value of business | To value the entire business, discount the cash flows before debt payments (cash flow to the firm) by overall cost of financing, including both debt and equity (cost of capital). |
| − | Debt | From the value of the business, subtract ... |
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.