Public Financial Statements of a Company
The final exercise is the valuation of a publicly held company's equity. You must base your valuation on the company's public financial statements. Your analysis should include, at a minimum:
1. The value of the equity;
2. A statement about your assumptions including but not limited to the amount and value of debt and working capital requirements;
3. Support for your horizon decision;
4. Explanation for your anchor value, if any;
5. Explanation of your discounting procedure (what is the discount rate and how did you arrive at it);
6. Explanation of how you manage large cash balances now accumulated on your target's balance sheet, if any;
7. Explanation of your continuing value or other terminal value, if any
8. A reconciliation or your valuation versus the publicly traded equity value of the company - are the differences within a narrow range of mathematical rounding or the outcome of small but not value-relevant estimation risk, or the result of a market inefficiency that prompts a trading rule (go short or go long);
9. Explain, if you can, whether the differences identified in item 8 above result from fundamental market mispricing or a specific type of dynamic in market efficiency (there is no difference might mean strong form "efm" while something else may lie somewhere in the range of strong from to weak form "efm" market dynamics).
10. Be sure to fully explain the numerator in each time period's undiscounted value - ranging from earnings, to free cash flow, to residual earnings, to abnormal earnings growth, etc.
11. Explain the growth dynamics reflected in your quantitative model - what exactly happens to the company's products in the growth you assume, or what amount of the growth can be explained by inflation.
12. Be sure to identify any information limitations - what are the likely sources of error in your estimate?