Determine the valuation of a company. Use the Discounted FCF model and the Walmart Valuation example.
Good student 1
Valuation_Example_-_Putting_it_all_together.pptxWal-Mart Stores Inc. Sample Valuation Model
Revenue/Margin/Taxes are projected which will result in a forecasted NOPAT
How much of NOPAT will be reinvested? Must be estimated. Note that there should be a logical correlation between how much in invested and the growth in Revenue. This is judgemental.
With NOPAT and Reinvestment Projected this will result in FCF for the forecast period.
Forecast NOPAT for the first year of the residual period.
ROIC – Some thought must be given to the company’s ROIC. Is it increasing / decreasing from where it was historically? Where will it be in the first year of the RESIDUAL period? If ROIC > WACC then it has a positive spread. Positive Spread creates value! However, for most companies in a competitive environment in the long run WACC = ROIC resulting in a no-growth model.
Growth Strategy – Investment Rate Estimated based on Growth & ROIC
Growth= IR * ROIC
2.0% = ? * .15
IR = G/ROIC
IR = .02/.15 = .13
No Growth / Harvesting NOPAT = FCF
Residual Period Valuation
Estimate of Corporate Value (showing all 3 potential models)
No Growth HarvestingGrowth
Forecast Period (years 1-5)61,504 61,504 61,504
Residual Period (years 6+)250,988 202,721 318,696
PV of FCF312,492 264,225 380,200
Cash & Marketable Securities7,395 7,395 7,395
Corporate Value319,887 271,620 387,595
Market Value of Debt(49,822) (49,822) (49,822)
Value to Equity Holders270,065 221,798 337,773
Shares Outstanding3,516 3,516 3,516
Estimated Price Per Share76.81 63.08 96.07
