Lecture Notes on Valuation and Financial Metrics

Flashcards for firm valuation, economic value added, market value added, enterprise value, comparables valuation, cost of capital, free cash flow to equity and return metrics.

Firm Value

The sum of the present values of future free cash flows plus the present value of the terminal value.

FCFt

Free Cash Flow in year t

r

Discount rate (typically WACC)

g

Growth rate

Terminal Value

Value of firm after year N

Economic Value Added (EVA)

NOPAT - (WACC * Capital)

NOPAT

EBIT * (1 – tax rate)

Capital

Total capital employed (debt + equity)

EVA (Alternate Form)

Capital * (ROIC - WACC)

Market Value Added (MVA)

Market Value of Capital - Book Value of Capital

Enterprise Value (EV)

Equity Value + Net Debt

Enterprise Value (EV) Calculation

Share Price * Shares Outstanding + Debt - Cash

EV/EBITDA

Used for capital-intensive firms

P/E

Equity-focused measure (price per share / earnings per share)

P/S

Used when earnings are negative or volatile

EV/Sales

Useful for startups or firms with no profit yet

Cost of Preferred Stock

Dividend / Price

Free Cash Flow to Equity (FCFE)

Net Income + Depreciation - Capex - ΔWC - Debt Repayment + New Debt Issued

ROIC

NOPAT / Capital Invested

ROE

Net Income / Equity

ROA

Net Income / Total Assets