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Module 5: Valuation Using Cash Flows

This module outlines the essential components of cash flow valuation, focusing on the assumptions that drive DCF analysis. Key topics include industry sales growth rates, covered methods for restructuring, implications of impaired acquisitions, and strategies involving layoffs. A projected five-year growth plan until 2015 highlights industry-specific sales growth rates, profit margins, and asset turnover assumptions. The module provides a structured approach to understanding the impacts of these variables on enterprise valuation, essential for financial analysts and decision-makers.

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Module 5: Valuation Using Cash Flows

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  1. Module 5: Valuation Using Cash Flows Brian Phelan

  2. Agenda • Assumptions • DCF analysis

  3. Sales Growth Rate • Restructuring • Impaired acquisitions • Layoffs • 5 year plan -> growth by 2015

  4. Industry Sales Growth Rates

  5. Sales Growth Rate • 2014: -5% • 2015 and beyond: 2%

  6. Enterprise Profit Margin from Sales

  7. Industry EPM from Sales

  8. EPM Assumption • Assume: 7.5% • HP Average: 7.82% • IBM Average: 12.14% • MSFT Average: 30.49% • Little variation within each firms annual EPM

  9. Enterprise Asset Turnover

  10. Industry EATO

  11. EATO Assumption • Assume: 3.86 • Average HP EATO • EATO little annual variation for each firm

  12. Assumption Summary • Sales growth rates: • 2014: -5%; 2015 and beyond: 2% • Enterprise profit margin: 7.5% • Enterprise asset turnover: 3.86

  13. DCF Model

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