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FINANCIAL MARKET COURSES

Equities – Returns-Based Valuation

Research analysts typically focus on market multiples and discounted cash flow (DCF) techniques to derive estimates of valuation for a company. In times of economic uncertainty, however, with volatile markets and opaque forecasts, it can be extremely challenging to derive reliable estimates using these techniques.

 

In this course, we examine alternative ‘returns-based’ valuation techniques, which can be used to determine how efficiently a company is using its capital resources. In particular, the concept of EVA as a method of calculating shareholder value creation is explored in detail. We demonstrate how EVA can be reconciled to the DCF valuation technique and compare the differences between accounting returns and cash returns used for discounting. Finally, we highlight what adjustments should be made to enterprise value in deriving a single stock price target.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Outline the differences between return on equity (ROE) and return on invested capital (ROIC)

    Understand and apply Economic Value Added (EVA) as a technique for assessing shareholder value creation

    Identify the differences between cash returns versus accounting returns on invested capital

    Convert enterprise value into a single stock price target

  • COURSE OUTLINE

    Topic 1: ROE and ROIC

    ROE and ROIC

    ROE and the Cost of Equity

    ROE/ROIC and Financial Institutions

    Topic 2: Economic Value Added

    Calculating EVA Using Accounting Data

    EVA And Value Drivers

    EVA and Market Value Added (MVA)

    Equivalence of EVA and DCF

    Criticisms of the EVA Methodology

    Topic 3: Cash Returns and Accounting Returns

    Cash Returns and Accounting Returns

    Cash Flow Returns on Invested Capital (CROIC)

    Topic 4: Enterprise Value and he Single Stock Price Target

    Using Enterprise Value to Estimate the Single Stock Price Target

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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