Discounted Cash Flow Modelling for Corporates

Dubai 2009. Contact us to find out about the next edition of this course.

DAY 1: FINANCIAL FORECAST AND MODELLING

Review of modelling process

• Modelling process overview
• Objectives and approach
• Modelling and formatting best practice
• Model structure

Exercise: Skeleton forecasting model and a set of historical accounts. Input historical income statement

Forecasting the income statement 

• Key drivers for modelling
• Revenues and operating costs
• Using equity research to model

Exercise: Forecasting module to the pre-tax level and link it to the income statement

More complex issues 

• Taxation, including net operating losses
• Provisions (restructuring, environmental, deferred taxation), effects on income statement and cash flow
• Associates, treatment and forecasting
• Minority interests, treatment and forecasting

Exercise: Income statement to the post-tax and dividend level, to include associates and minority interest

• Fixed assets and working capital
• Forecasting fixed tangible and intangible assets
• Discussion of key drivers of capital expenditure and depreciation
• Forecasting depreciation, existing and new assets
• Forecasting components of non-cash working capital

Exercise: Capital expenditure, depreciation, fixed assets and non-cash working capital

Net income and shareholders’ equity

• Forecasting net income
• Dividend policy and retained earnings
• Forecasting shareholders’ equity

Exercise: Net income based on the assumption of constant debt and a tax rate. Dividend policy and movement in shareholders’ equity

Cash flow statement

• Cash flow from operations
• Cash flow from investing activities
• Cash flow from financing activities
• Modelling the cash waterfall
• Scenario capital structures
• Interest calculation

Exercise: Cash flow statement and balance sheet with cash waterfall. Different capital structures

Ratio analysis

• Assessing the company’s operating performance and credit quality
• Use of ratios in evaluating forecasts, using DuPont analysis in forecasting

Case study

DAY 2: ABSOLUTE VALUATION

Principles of valuing cash flows

• Discounted cash flow theory and rationale
• Absolute and relative valuation
• Basis of DCF
• Earnings compared to cash flows
• DCF in context

Identifying the correct cash flows

• Understanding which cash flows are discounted in valuing a corporate
• Core assets vs. non-core assets
• Free cash flow and NOPAT
• Forecasting free cash flows
• Cyclicality

Exercise: NOPAT and FCF calculation from an income statement

Cost of capital

• Why is the cost of capital important?
• What do we mean by capital?
• Cost of debt

Cost of equity

• Dividend discounting
• CAPM

Weighted Average Cost of Capital (WACC)

• Calculation
• Target capital structure

Exercise: WACC calculation in the model

Terminal values 

• Gain understanding of key issues surrounding the terminal value in a discounted cash flow forecast
• How long should the forecast period be?
• What is the terminal value and is it important?

Terminal value approaches

• Stable growth
• Liquidation value
• Multiples approach
• Terminal value issues

Exercise: Stable growth and multiple approaches to terminal value

Discount periods

• Modelling cash flows that arise outside of a period end
• Intra-period discounting

Final step of DCF 

• Using the DCF model to build a total value of the firm
• Dealing with core and non-core assets
• Arriving at equity value

Exercise: Link the enterprise value to the total equity value of the firm

Qayyum Hafeez

Qayyum has over 13 years of investment banking and private equity experience. He is currently working as a senior vice president in GCC based private equity fund in an investment bank in oil and gas industry. His role there is to source, evaluate and invest in private equity and execute M&A and joint venture opportunities in oil and gas industries in the Middle East region. Prior to this, Qayyum was a principal at Odeon Capital Partners, a $120 million private equity fund based in New York City and before in Bear Stearns' Mergers & Acquisitions and Leveraged Finance investment banking groups in New York where he was involved with multi-billion dollar transactions in retail, consumer products, technology and manufacturing industries. 

While he was living in New York City from year 2000 through 2008, Qayyum was involved in many teaching and training engagements at university and corporate level. He was a guest speaker at New York University's Stern School of Business as well as taught a full-term MBA course at the Long Island University. His teaching experience include workshops at New York Private Equity Network the association which has over 500 active members.

 * Eureka Financial reserves right to change trainer due to unforseen circumstances.

Dubai - dates tba

Contact us to find out about the next edition of this course.

Early BIrd: £1695 / Regular Price: £1750

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DISCOUNTS

• 3 people - 10% discount. Delegates must be from the same company and register at the same time.

• If you book for 2 courses at the same time you will receive 10% of the  value of the cheaper course. This discount cannot be combined with an earl bird offer.

IN-HOUSE TRAINING

If you have a team of 4 or more this course can be customised and organised in-house at your convenience. Contact one of our advisors to find out more.

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                       or send us an e-mail to: enquiry@eurekafinancial.com