Analysing, Planning and Valuing Private Firms

ISBN-13: 9783031380884 / Angielski / Twarda / 2023

Federico Beltrame;Alex Sclip

Opis

Corporate finance plays a vital role in every business as it pertains to an array of financing and investment decisions. Where most corporate finance books provide tools for public companies, this book presents new approaches and methods for planning and valuing private firms. Chapters discuss how typical valuation methods may not be perfectly adaptable to private firms and their investment decisions: in particular showing how the widely used Capital Asset Pricing Model cannot be precisely applied for the estimation of cost of equity for private companies, and the limitations of market multiples which may not match individual company features.The book suggests new ways of financial forecasting that can be better tailored to private businesses, such as by exploiting the concept of financial breakeven based on debt serviceability that departs from the more traditionally used concept of the revenue-cost breakeven. Topics including financial planning, working capital management, the cost of capital, and valuation methods are all covered. This book will be of interest to consultants, analysts and accountants working in private firms, as well as academics and students who are interested in an empirical assessment of the role of corporate finance in private businesses versus larger public companies.

Spis treści

Chapter 1: Corporate Financial Analysis

1.1. Introduction

1.2. The reclassification of the balance sheet

1.2.1 The reorganization of the balance sheet according to asset liquidity and liability maturity

1.2.2 The reorganization of the balance sheet by-function

1.2.3 In-depth analysis of NOWC monitoring and management

1.3. The income statement reorganization

1.3.1 The reorganization of the income statement as value-added

1.3.2 The reorganization of the income statement by the contribution margin

1.4. Ratio analysis

1.5 Cash flow statement analysis

Appendix to Chapter 1 – A comprehensive financial analysis method

Chapter 2: The financial and economic forecast

2.1 Introduction

2.2 Qualitative analysis

2.3 The traditional economic and financial forecast: from assumptions to estimation procedures

2.3.1 Assumptions

2.3.2 The estimation process to obtain a forecast budget

2.4 A different method to estimate forecast operating revenues

2.5 Conclusions

Appendix to Chapter 2 – Drafting a forecast budget: combining new and classic approaches

Chapter 3: The cost of capital for private businesses

            3.1 Introduction

3.2 Private business evaluation: general points

3.3 The critical issues in calculating the cost of capital for private owned companies

3.3.1 First issue: “no market reference for equity and debt”

3.3.2 Second issue: “Consider specific risks when making the evaluation”

3.4 An alternative model to estimate the cost of capital of private corporations

3.4.1 The model basics

3.4.2 Estimating the unlevered cost of capital through a risk-neutral approach

3.4.3 The default probabilities for the model

3.4.4 The Loss Given Default (LGD) to be used in the model

3.5 Conclusions

Appendix 1 to Chapter 3 – Steady-State and Steady-Growth evaluations

Appendix 2 to Chapter 3 – Evaluation of an investment project

Chapter 4: Business valuation through market multiples

            4.1. Introduction

4.2. The key multiples

4.3. The evaluation process

4.4 The critical issues with comparabilities in the use of multiples

4.4.1 A conceptual outline

4.4.2 Adjustments by growth profile

4.4.3 Adjustments by debt level

4.4.3 Adjustments by growth rate and debt level

4.5 The issues relating to the calculation of the single multiple

4.6 Specific features of stock-market multiples

4.7 Using the multiples approach: final considerations

Appendix to Chapter 4 –The unlevered value maps: an empirical evaluation

Chapter 5: Conclusions - Putting all together for valuing a start - up

            5.1. Introduction

            5.2 Start-up capital structure, expected cash flows and cost of capital

5.3 Start – up valuation process

5.4 Focusing of the Venture Capital method

5.5 Conclusions

O autorze

Federico Beltrame is Associate Professor in Corporate Finance in the Department of Economics and Statistics, University of Udine, where he teaches corporate finance. He graduated in Economics at the University of Udine, where he also received his Ph.D. in Business Science. His main research interests are related to SMEs’ cost of capital, banks’ capital structure and mutual guarantee credit institutions.

Alex Sclip is Assistant Professor of Corporate Finance in the department of business administration of the University of Verona, where he teaches corporate finance at the undergraduate level and strategic finance at the graduate level. He has obtained his PhD from the University of Udine and has been visiting fellow at the Essex Business School (UK). His main research interests are in the field of empirical corporate finance and financial intermediation.

Blurb

"In this book, the authors were able to think outside the box, providing methodologies and approaches that can actually be used for the practice of unlisted company analysis and valuation, while maintaining scientific rigor. Unlike other books on the valuation of privately held companies, the methodologies can be used without resorting to sophisticated tools or proprietary information, highlighting their extreme applicability. Highly recommended.”
--Enrico Maria Cervellati, Associate Professor of Corporate Finance, Link Campus University, Rome

Corporate finance plays a vital role in every business as it pertains to an array of financing and investment decisions. Where most corporate finance books provide tools for public companies, this book presents new approaches and methods for planning and valuing private firms. Chapters discuss how typical valuation methods may not be perfectly adaptable to private firms and their investment decisions: in particular showing how the widely used Capital Asset Pricing Model cannot be precisely applied for the estimation of cost of equity for private companies, and the limitations of market multiples which may not match individual company features.

The book suggests new ways of financial forecasting that can be better tailored to private businesses, such as by exploiting the concept of financial breakeven based on debt serviceability that departs from the more traditionally used concept of the revenue-cost breakeven. Topics including financial planning, working capital management, the cost of capital, and valuation methods are all covered. This book will be of interest to consultants, analysts and accountants working in private firms, as well as academics and students who are interested in an empirical assessment of the role of corporate finance in private businesses versus larger public companies.

Federico Beltrame is Associate Professor in Corporate Finance in the Department of Economics and Statistics, University of Udine, where he teaches corporate finance.

Alex Sclip is Assistant Professor of Corporate Finance in the department of business administration of the University of Verona, where he teaches corporate finance at the undergraduate level and strategic finance at the graduate level.