The valuation of assets, both tangible and intangible, is an important element of corporate finance. Putting a price tag on ideas is almost impossible, and in the new economy, where companies grow dependent on intangible assets all the time, market volatility can be attributed in large part to our collective ignorance of their value. There are two basic approaches to valuation: from financial statements to cash flows, and from cash flows to financial statements. The former projects historical financial statements into the future and the latter attempts to construct cash flow statements and use them in forecasting future financial statements. Established companies use the first method and start-ups the second. In Principles of Cash Flow Valuation, the authors strive to "close the gap" between these two approaches by presenting the principles of cash flow valuation and cost of capital in a clear and systematic fashion.
- Provides the only exclusive treatment of cash flow valuation
- Authors use examples and a case study to illustrate ideas
- Presentation appropriate for a range of technical backgrounds: ideas are presented clearly, full exposition is also provided
- Named among the Top 10 financial engineering titles by Financial Engineering News
Finance professionals; MBA and other graduate students in finance
Chapter One Basic concepts in market-based cash flow valuation
1.1.1 Finite streams of cash flows
1.1.2 Content and organization of the chapters
1.2 Market-based procedure for valuation
1.2.1 Integrated valuation framework with complete financial statements
1.3 Steps in cash flow valuation
1.3.1 Why invest?
1.3.2 The role of information and expectations
1.4 Present value (PV)
1.4.1 Perfect capital markets and arbitrage opportunities 1.4.2 Valuation in an imperfect but real world
1.4.3 Perfect capital markets
1.4.4 Replicating portfolio strategy
1.4.5 Traded firms in the U.S. stock market
1.4.6 Traded firms in an emerging market
1.5 The standard after-tax Weighted Average Cost of Capital (WACC)
1.6 Types of cash flows
1.6.1 What is FCF?
1.6.2 What is cash flow to (existing) debt?
1.6.3 What is cash flow to equity (CFE)?
1.7 The WACC in a Modigliani and Miller (M & M) world
1.7.1 WACC in an M & M world without taxes
1.7.2 An unlevered company versus a levered company 1.7.3 The no-arbitrage argument
1.7.4 Slicing the cake
1.7.5 Debt and equity financing
1.7.6 Formula for the WACC without taxes
1.7.7 Equality of the unlevered and levered returns 1.8 WACC in an M & M world with taxes
1.8.1 The expanding cake
1.8.2 Why firms do not have 100% debt?
1.9 The fundamental FCF relationship
1.10 The main valuation methods and formulas for cost of capital
1.10.1 The tax shield (TS)
1.10.2 After-tax WACC applied to the FCF
1.10.3 Alternative expression for the WACC applied
- No. of pages:
- © Academic Press 2004
- 2nd February 2004
- Academic Press
- eBook ISBN:
- Hardcover ISBN:
Visiting Assistant Professor, Duke Center for International Development(DCID), Sanford Institute of Public Policy, Duke University
Politécnico Grancolombiano, Bogotá, Colombia
"The book goes a long way towards bridging the gap between the application of cost benefit analysis and the theory of capital budgeting. The authors have distilled the essence of years of gathering academic wisdom in the study of cash flow analysis and the cost of capital and presented it in a manner that is of immediate benefit both to the student and the practitioner in the field." --Savvakis C. Savvides, Cyprus Development Bank. "The book by Tham and Velez-Pareja is a very modern approach to valuation theory. The author's focus is not the pure theory of valuation but rather they present a book full of useful hints and tips that will please the practician. Tham and Velez-Pareja in particular stress the importance of financial statements and their use in valuation. Many detailed examples make it easy not only to understand but also to apply valuation theory." -- Professor Dr. Dr. Andreas Löffler, Lehrstuhl für Banken und Finanzierung, Universität Hannover "This is an elegant and insightful exposition of the principles and techniques involved in valuation of cash flows. The issues related to construction of cash flows and estimation of cost of capital under different scenarios that are vital to the valuation of firms and investments, are dealt with in a careful and straightforward fashion. The arguments are made in a clear and animated fashion and the presentation style is an interesting blend of rigorous analysis and simple illustrations. An essential reading for any one interested in understanding the issues associated with cash flow valuation and it should prove equally valuable to both scholars and practitioners." -- Gangadhar P Shukla, Professor of Public Policy, Duke University One of the Top Ten financial engineering titles published in 2003-2004 - Richard Norgate, Ph.D., Financial Engineering News