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Valuing a Business 

  • Liquidation Value
  • Breakup Value
  • Using comparables
  • Going Concern Value
  • Value in the Context of M&A, Distress and Restructurings
Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in 30+ countries abroad for the past two decades. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous corporations and financial institutions in the U.S. and abroad. As a banker and consultant he has been involved in the application of applied corporate finance in the USA, Europe and Asia. He is the author or co-author of The International Money Market , The Handbook of International Finance, Cases in International Finance , Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide.

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Valuing a Business

Prof. Ian Giddy
New York University

What is my company worth? What are the ratios used by analysts to determine whether a stock is undervalued or overvalued? How valid is the discounted present value approach? How can we value a company as a going concern, and how does this change in the context of a potential acquisition or restructuring?

Finding a value for a company is no easy task -- but doing so is an essential component of effective management. The reason: it's easy to destroy value with ill-judged acquisitions, investments or financing methods. This module will take participants through the process of valuing a company, starting with simple financial statements and the use of ratios, and going on to discounted free cash flow methods and beyond.

How a business is valued depends on the purpose, so the second half of the day will be devoted to implementation of the methods in different contexts -- such as valuing an acquisition target, and valuing a company in distress, and using valuation in corporate restructuring. We'll see how using the tools of valuation analysis can inform management choices, including strategies for participants' companies.

Recommended Reading:

  • Finance for Executives by Hawawini and Viallet (Southwestern)
Pre-Course Reading: Background Study: Module Outline:  

Part 1: Valuation Methods

  • Asset-Based Valuation
  • Breakup Value
  • Using Comparables
  • Discounted Free Cash Flow
  • Option-Based Valuation
Case Study: Valuing IBM
Assignment: How should IBM be valued? What can the balance sheet and other financial statements tell us, and how can we project the company's free cash flows to estimate its going-concern worth? What factors could change this valuation? How can this approach help drive management decisions at IBM?
Handout: Valuing a Business
Spreadsheet: IBMvaluation
Part 2: Implementation
  • Valuation in an Acquisition Context
  • Distress Valuation
  • Valuation as a Restructuring Tool
  • Corporate Valuation: A Management Tool
Case Study: Flexics
Assignment: The controlling owner of this Seattle-based plasma technology company is seeking a means of realizing its corporate value. What is it worth in the market, and could it be worth more to LBO investors? What is Flexics worth as an acquisition target to Photronics, and how much of a premium should be paid? What restructuring could add value?
Handout: Valuation: Special Applications
Spreadsheet: MEEPvaluation.xls
Spreadsheet: flexicsdata.xls

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