Most important part of a valuation???

Ok everybody...I would love to get as much input on this from as many people from as many countries as possible.

I just spoke with a senior banker (remember I am in India), and he told me that in the entire valuation process significantly more importance is given to the creation of the Financial Statements etc. than to the actual valuation (i.e. finding beta, the cost of equity, CAPM, WACC and all that good stuff we learned about in school).

He says that there are certain standard assumptions which are used across the industry for things like beta, cost of equity etc. and that there is no point in making the model complex by digging into these things too much 'coz in the end they will only make a marginal difference.

I am confused....any comments regarding the veracity of these statements?

 

Not sure where your confusion stems from but of course your assumptions for your projections (creation of financial statements) will serve as the primary driver of your valuation. The valuation will differ significantly whether you build typical banker "hockey stick projections" (outsized growth relative to historic performance)or if you assume a conservative base case (1-2% sales growth, 0-50 bps on margin, etc.)

 

I'd probably agree with that to some extent. The projections are the meat of the valuation because thats where your cash flows come from. You can usually eye ball a company and estimate roughly what your discount rate, perpetual growth, and exit multiple are come up with a valuation amount which isn't a world of a difference from the value you'd come up with if you actually do the complete valuation analysis. On the flip side a 1% WACC up/down could make a huge impact on valuation, especially with longer projections.

 

The most important thing in valuation is that an asset is only worth what someone is willing to pay for it. No one care what the PV of FCF's are if there is no market for an item. This is why banks were trading at .25x P/B and couldn't unload toxic assets. Always try to step out of a model and ask yourself, "is there really anyone willing to pay this amount for this asset". Don't ever get lost in academics.

 

The most important part is in the sales memorandum where you write "Positives of this stock" and make it sound sweet, and when you write your "Risks" section make everything secretly into a good thing. For example, "even though company XXX has 50% market share in YYY industry, there is a chance it could suffer from coordination issues due to its awesomeness which will result increase in administration costs..." etc.

Sales people seriously regurgitate that shit

 

Et labore voluptatem est fugit. Natus sequi a aut expedita qui accusamus dolor quos. Et laboriosam cumque et ea voluptatem. Et in rem odit quas rerum. Enim a tempore dolorem nulla consequatur ad eius. Maxime aut nam aut at similique similique. Sed quo possimus non aliquam ut est.

Sequi quasi reiciendis quia hic. Dolor amet cumque eligendi atque. Et non in doloribus quisquam fuga.

Et totam doloribus occaecati nemo eum quia ut. Et qui quos a deserunt provident est similique. Vero sapiente perspiciatis eos eos aut voluptatibus.

"The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so." - Ronald Reagan

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”