Summary: Sfma S6: Company Valuation
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1 SFMA S6: Company valuation
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What is the basis for Asset-Based Valuation?
- Based on net asset value of equity
- Value = Company's assets minus liabilities
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What are the steps for valuing unquoted companies using the Dividend Yield Method?
- Calculate maintainable dividend level.
- Devise appropriate dividend yield from similar quoted company.
- Divide maintainable dividend by yield.
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What do you subtract from assets in Asset-Based Valuation?
- Subtract Current liabilities
- Subtract Non-current liabilities
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What is company valuation?
- Not an exact science
- Multiple methods used
- Final price negotiated
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What are the issues with using the Dividend Valuation Model?
- Difficulty in estimating growth.
- Assumes constant growth.
- Zero dividend firms are challenging.
- Issues with high growth firms.
- Focuses on minority interests.
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What might Asset-Based Valuation assumptions include?
- Book Value equals Realisable Value -
Why might valuations of entities or equity be needed?
- Buying into a company
- Mergers and IPOs
- Taxation and finance
- MBOs and takeover bids
- Collateral for loans
- Divestment and subsidiary sales
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What does the P/E Ratio Method focus on when valuing companies?
- Suitable for controlling or majority interest.
- Relates controlling interest to earnings and policy.
- Uses earnings per share (EPS) as key metric.
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Name an adjustment needed in Asset-Based Valuation.
- Needs Professional valuation for accurate physical asset values -
Name some practical issues influencing company valuation.
- Control premium
- Size and liquidity discounts
- Maintainable earnings and terminal value
- Risk premium
- Rules of thumb and comparative transactions
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