Executive summary: A very brief introduction to the company, which models you have used for valuation, what your overall view of the company’s price is and what the main risk factors are. (5%)
– Company overview: Including info on the services or products, market share, main competitors, major events (M&As, strategic reviews, management turnaround, etc.), business strategy, management of the company, life cycle and a brief look into Porter’s Five Forces and industry conditions. (15%)
– Historical information of the company: 3 – 5 years financial statements (balance sheet, income statement and cash flow statement), preferably common-sized as well to give a better perspective. These will probably end up in the appendix. (5%)
– Ratio analysis: You will be able to calculate them or extract them directly from a source, but if I find errors and irregularities I’ll hold you responsible for not checking. So even if you’re extracting these from a source, make sure you cross-check the main numbers. These can include liquidity, leverage, efficiency and capital ratios along with anything else required. Look into these and discuss any irregularities or major patters. Also you’d ideally compare these ratios with some benchmark, like the peer companies’ ratios or the industry average. (15%)
– Quality of financial reporting: Balance sheet-based accrual ratio and cash flow-based accrual ratio. If the net value of these ratios is increasing, then they have more room for manipulation; otherwise, you are good. If there is manipulation, you might as well look at cash flows too, like the case of Nestle right after checking the accrual ratios. (10%)
– Choice of valuation model: Dividend Discount Model, FCF models and Relative Valuation. Explain why you’re using/not using a specific model. You probably don’t need to do both FCFE and FCFF, one would suffice. (5%)
– Discuss the main assumptions you make and how you get there: Growth rate- why did you assume this? How do you calculate the required return on equity? What are your assumptions about your cost of debt and target capital structure? etc. Present your case and the valuation results clearly under each method. (25%)
– Sensitivity analysis: What happens if your main assumptions change? Range of potential values. (10%)
– Conclusion and recommendations: Checking the price in the market, is the share under or over-priced? What are the main concerns about your valuation outcome and the main risks the company faces, which might affect this valuation? (10%)
