1 Enterprise Value, Company Value, and other Essential Financial Data1.1 Abstract and Keywords. 9
1.2 Definition of Two Essential Aggregates. 10
1.2.1 Enterprise Value. 10
1.2.2 The Fair Market Value of Equity. 13
1.2.3 Case Study Showing the Differences Between the Two Aggregates. 15
1.2.4 Fundamental Equations. 17
1.2.5 Market Efficiency and Behavioral Finance. 19
1.3 The Strategic Positioning of a Company. 23
1.4 Method Comparison and a Few Recommendations. 27
1.5 Key Takeaways and Limitations. 31
2 Asset-Based Approach to Valuation. 34
2.1 Abstract and Keywords. 34
2.2 The Net Worth of a Company. 36
2.3 Adjusted Net Asset Value Method. 41
2.3.1 Essential Income Statement Adjustments. 43
2.3.2 Essential Asset Adjustments. 53
2.3.3 Essential Equity and Liability Adjustments. 60
2.3.4 Case Study of a Family-Owned Real Estate Investment Company. 66
2.3.5 Adjusted Net Asset Value Case Study. 67
2.4 The Capitalized Excess Earnings or Goodwill Method. 71
2.4.1 Intangible Assets and Goodwill 71
2.4.2 Implementation of the CEEM or Goodwill Method. 72
2.4.3 Goodwill Valuation Case Study. 82
2.5 Key Takeaways and Limitations. 91
3 Fundamental Value or DCF Approach to Valuation. 94
3.1 Abstract and Keywords. 94
3.2 Fundamental Value Definition. 95
3.3 The Two-Stage DCF Method. 96
3.4 Generalities on the Forecast and Scenarios. 100
3.5 Free Cash Flows. 103
3.5.1 Free Cash Flow to the Firm.. 103
3.5.2 Free Cash Flow to Equity. 106
3.5.3 Company SEGI's Free Cash flows Case Study. 106
3.5.4 Free Cash Flow Summary. 112
3.6 Cost of Equity. 113
3.6.1 The Methods Used. 113
3.6.2 The Issues and Ambiguities of the Risk Premiums. 116
3.6.3 Estimated Cost of Equity for a Small Business. 117
3.6.4 Implementation of the Build-Up Method. 122
3.7 Weighted Average Cost of Capital (WACC) 124
3.8 Dividend Discount Model 127
3.9 DCF Case Study (Company SEGY) 128
3.9.1 Free Cash Flows and Assumptions. 129
3.9.2 Indirect DCF Method. 130
3.9.3 Direct DCF Method. 133
3.9.4 Estimated Equity Value. 134
3.10 Key Takeaways and Limitations. 136
4 Market Approach to Valuation. 139
4.1 Abstract and Keywords. 139
4.2 Precedent Transaction Analysis. 141
4.3 The P/E Multiple Approach. 142
4.3.1 Potential Valuation Case Study. 144
4.3.2 P/E Dynamics. 144
4.3.3 P/E Limitations. 150
4.4 The EV/EBITDA Multiple Approach. 151
4.5 Other Comparative Valuation Methods. 153
4.5.1 The Price to Book Value Multiple. 153
4.5.2 Cash Flow Valuation Methods. 154
4.5.3 Valuation with a Non-Financial Multiple. 154
4.6 Market Multiple Adjustments. 155
4.7 Case Study with the P/E and EV/EBITDA Multiples. 157
4.7.1 Company Y's Financial Data. 157
4.7.2 Comparison Between the P/E and EV/EBITDA Multiples. 157
4.7.3 Equity Value Calculation with the Two Sector Multiples. 158
4.7.4 Equity Value Calculation with the Leader Multiples. 159
4.7.5 Equity Value Calculation with the Laggard Multiples. 160
4.7.6 Equity Value Overview.. 160
4.7.7 The Business Valuation Professional's Decision. 161
4.7.8 The Drawbacks of Historical Averages. 161
4.8 Key Takeaways and Limitations. 163
5 Full Valuation Case Study (Company SEGA) 167
5.1 Abstract and Keywords. 167
5.2 Generalities on the Applied Valuation Methods. 168
5.3 Presentation of Company SEGA.. 171
5.4 Adjusted Net Asset Value. 175
5.4.1 The Adjusted Net Asset Value Method. 175
5.4.2 The CEEM or Goodwill Method. 178
5.4.3 Asset-Based Equity Value Estimates. 182
5.5 Discounted Cash Flow Methods. 183
5.5.1 Valuation According to the Optimistic-Case Scenario. 184
5.5.2 Valuation According to the Pessimistic-Case Scenario. 186
5.5.3 DCF Value Estimates. 190
5.6 Precedent Transaction Analysis and Market Multiple Valuation. 190
5.6.1 Precedent Transaction Analysis. 190
5.6.2 Adjusted P/E Multiple. 191
5.6.3 Dividend Discount Model 192
5.6.4 EV/EBITDA Multiple Valuation. 195
5.6.5 Market Value Estimates. 195
5.7 Estimated Equity Value of Company SEGA.. 196
5.7.1 Results. 196
5.7.2 The Valuation Professional's Decision. 197
6 General Bibliography, Webography, and Further Reading. 201
