17 March, 2009, Hotel Dubrovnik, Zagreb, Croatia. Language: English, with translation to Croatian

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About the Program

The course Valuation of Companies provides the ideal platform for business owners/managers to hone their management skills. In essence, business can be summarized by numbers, and such numbers form the platform for valuation. However, a lot of uncertainty exists regarding the valuation of private companies, and this class provides the ideal template to hone attendee skills from multiple perspectives. In essence, valuation entails strategic/value driver analysis, accounting and financial analysis, the valuation of intangible assets, project selection and firm value, understanding the cost of debt and cost of capital, discounting future value creation, calculating firm value. The most valuable aspect of this course is that it will entail various real-life examples, and hands-on experience that you can take back to your company. The ultimate goal for every participant is to understand his business, understand his potential, and understand his value.

The first piece of valuation entails strategic analysis. What is the company's value drivers, what the competition is, where the avenues for growth are, and what the specific threats are. Strategic analysis entails understanding a firm's core strengths and weaknesses, and building value by enhancing strengths and hedging weaknesses. A firm in a biotechnology industry works to protect patents and increase them, while at the same time decreasing exposure to short term financing constraints. A firm in production needs to streamline operations, shift operations to lower cost jurisdictions, and continuously explore avenues for export – at the same time carving out a niche for low-cost imports. In essence understanding the viability of firm strategy, the strength of the competitive niche, has a direct bearing on firm value and value-creation.

Once value drivers and strategic fit is understood, then the next step is to undertake accounting and financial analysis. In essence, a firm in a superior competitive position needs to preserve the superior performance and to enhance it, while the laggard has to devise strategies to catch up. How does strategy translate into numbers, and how do those numbers affect firm value. The key questions are what are current numbers, and to predict future numbers. A first step is to understand profits/cash from current operations, and then to be able to predict the sustainability (and growth) of current numbers toward the future, finally, to understand how future cash/profits translate into firm value. In addition, simple valuation shortcuts such as P/E ratios, P/CashFlow, or P/BookValue, will also be discussed.

Given an understanding of current operations on firm value, the next step in valuation and value-creation is to understand project selection. Which part of current operations needs to be divested, which products to focus on, and which activities burden overhead. Since "cash" is finite, the idea is to (1) to choose which of current operations adds the most value, and (2), to identify which possible future projects needs to be undertaken. Project analysis provides simple rules-of-thumb regarding the desirability of some projects over others, with an eventual effect on firm value.
Given the occurrence of payoffs at some possible distance in the future, essential is the understanding of what such profits are worth at the current moment. Hence, an understanding of "discount rates" – the concept that money in the future is not worth the same as now, and this variability is affected by firm leverage, and the returns demanded by investors. Naturally, riskier projects requite higher discount rates from banks and shareholders. Understanding how to calculate discount rates, given exposure to debt and equity markets, have a drastic effect on firm value.

Given our understanding of future cash/profitability, and discount rates, the final piece of the puzzle is to calculate firm value. This entails learning a hands-on understanding of excel. Projecting future payoffs and understanding effects on firm value is the bread-and-butter staple of modern valuation. Students, in-class, will experience a number of real-life examples on excel and valuation, in turn, will practice their newly acquired skills in a variety of practical situations. In effect, calculating firm value will be the eventual outcome.

Additionally, above and beyond traditional valuation techniques discussed above, an important element is to understand what a firm's sale price is. Often, managers need to understand "what if" situations: what if were we to sell the company on the spot. What would be the value of intangible assets, market know-how, the implicit knowledge of managers and owners. Various schemes will be discussed: partial sale of the company, partial sale for the intermediate period with the option of full ownership by a third party, and finally, a complete sale. The costs/benefits of each situation will be discussed from the perspective of maximizing the payoff to the seller.

In sum, this will be a "heavy" class. Heavy in knowledge! In a cramped 5 hour session participants will have a quick exposure to all the essential elements of value-creation and valuation. This rigorous and comprehensive program will not only introduce the basic building blocks of valuation, but also provide with enough knowledge where students are able to build further, on their own, an integral understanding of firm business and processes. Understanding the effect of business processes, on value, will enhance participants understanding of their firms and its worth.

Know your business, know your potential, know your value!

Program Objectives

• To provide a firm understanding of key valuation concepts
• Focus on cost of capital, cost of debt, and discount rates
• Understanding of various scenarios and their effect on firm value
• Valuation using ratios, multiples, discounted cash flow/earnings analysis
• To provide key "forecasting" concepts, and their relationship to firm value
• The usage of accounting numbers and transactions, on firm value
• To provide a on-hands competency in utilizing excel
  

Expected Outcomes

The intensive one-day training program develops competencies in the essential elements of valuation. These include:

• Using excel in constructing forecasts of future performance and linking them to firm value
• Understanding concepts of discount rates and the time value of money
• Understanding the role of multiple valuation techniques, and the appropriateness of each technique, given the situation at hand
• Learn the fundamentals of due dilligence process
• Discuss specific issues facing those who perform valuation of Croatia/regional companies

All these issues are discussed taking into consideration the unique characteristics of private businesses. We use several real life examples including two Harvard Business School case studies on valution of SME companies. The program ends with a discussion of certain specifics of the Croatian/regional market and their influence of company valuation.

Who should attend

Valuation of Companies is ideal for anyone seeking a solid understanding of the key concepts behind valuation. No prior background on valuation is required, hence, the class will provide essential building blocks in understanding valuation terminology and its use in the modern business world. It is suitable for:

• CEOs
• CFOs and other financial managers
• Senior Corporate Executives
• Managing Directors
• Business Strategy Directors
• Business Analysts
• Strategy Consultants
• Auditors
• Legal Advisors

The Program Structure

9.30-11.30 Lecture on key valuation concepts

•  Analysis of financial statements
• Analysis of operating performance
• Forecasting
• Discounting and valuation

11.30-12.00 Coffee break

12.00-14.00 Case analysis

• Harvard Business School case on valuation of a private business
• Harvard Business School case on value creation in a small business

14.00-15.00 Lunch

15.00-16.00 Guest lecturer (TBA)