How do you value a Company and its Shares?
Apple, Amazon, Tesla, Microsoft – great companies perhaps, but are they great investments? While there are a variety of investment styles an investor might apply, investing over any reasonable period ultimately boils down to a simply reality – if you overpay for a stock you are likely to get stung, and if you underpay then odds are you will profit. Therefore, to stack the deck in your favour when investing, the ability to value a company is vital.
The Company Valuation Playbook introduces you to the industry-standard tools used by professionals globally to value companies and their shares. These valuation tools can be applied by anyone, no matter their experience. All you need is a computer, the internet, and a bit of common sense.
A must read for the aspiring investor
Smart, methodical and practical
Alexandra Altinger, CEO, J O Hambro Capital
Stephen Pearson, CIO, Jupiter Asset Management
1. Qualitative Analysis – Learn the key forces that shape a company’s outlook
2. Quantitative Analysis – Understand how to read, interpret and standardise financial statements
3. Fact finding – Discover how to dig out information on a company, disclosure requirements and voting opportunities
4. Projecting Returns – Acquire the skill to develop an objective forward looking forecast, ranging from a simple headline guestimate right through to a full three-statement financial model
5. Estimating Risk – Master the ability to build up a required return using the risk free rate and risk premium
6. Intrinsic valuation – Discount company cash flows to generate a valuation based on shareholder return
7. Relative valuation – Uncover how to standardise the valuation of peer companies, then adjust and apply to a valuation target
SPECIAL VALUATION SITUATIONS
8. Mergers & Acquisitions – Understand the process and adjustments when valuing a company as part of a merger or acquisition (M&A)
9. Leverage Buyouts – Incorporate additional debt assumptions when dealing with highly leveraged transactions (LBO’s)
10. Start-up – Modify the relative and intrinsic valuation approach to make it applicable for companies with little or no history
11. Banks – Determine the key variables, limitations and adjustments required when valuing a bank
12. Profiting from insights – Learn how to manage a large universe of opportunity, and the considerations to take into account when taking a long or short position
13. Behavioural biases – Study how to avoid the many behavioural biases which create avoidable investment errors
Who is the target reader of ‘The Company Valuation Playbook’The book is relevant to anyone that wants to value a company and its shares. This may, for instance, be to form an investment decision or to provide investment advice. It was written to help others avoid the frustration the author, Charles Sunnucks, faced when trying to get easily understandable answers on this topic. The book covers both public and private market equity valuation, plus fleshes out how to identify potential targets and avoid behavioural biases. Understanding what drives a company’s value is a fascinating journey and will likely entirely re-shape how you look at a company.
What is the focus of the book?The Company Valuation Playbook does not focus on fast trading or new-fangled theories. Rather, it introduces you to the simple industry-standard tools used by professionals globally to value companies and their shares. These tools are relevant to all companies, and they range in complexity from those requiring only a pen, paper and calculator right through to the development of a comprehensive Excel discounted cash flow output. While some concepts may appear complicated at first, you only need some basic maths knowledge and a bit of common sense to work through them. As Warren Buffett eloquently put it, “Investing success doesn’t correlate with IQ after you’re above a score of 25. Once you have ordinary intelligence, then what you need is the temperament to control urges that get others into trouble.”
Do I need to have prior financial experience to read this book?No prior experience required. The book makes no assumptions about your financial literacy and takes a step-by-step explanation approach to each topic. This includes detailing key accounting standards, and how to interpret financial statements.
Does ‘The Company Valuation Playbook’ follow the CFA syllabus?The author of The Company Valuation Playbook, Charles Sunnucks, took and passed all of the CFA exams, so the content is certainly influenced by the CFA curriculum. The book however focuses on equity valuation, while the CFA exams also cover debt and derivatives in detail. A further difference is that the book is far more focused on being a practical guide, while the exams are largely ‘taught-to-test’. For those considering or taking the CFA, the book will nonetheless be highly helpful, breaking down complex topics with examples and diagrams.
Is the book relevant for those studying finance or undertaking an MBA?Absolutely, and indeed a number of courses globally are already using the book within the curriculum. The book is also used by some financial service firms as a training self-training guide for new recruits.
Does the book cover ESG (environmental, social and governance) considerations?"Yes, and indeed while there are many who treat this as a separate discipline, the author is of the belief that ESG risks should be fully incorporated into any thorough fundamental assessment of a company’s worth. Increasingly the externalities – the costs that companies had historically imposed on their physical and social environment – are now increasingly being internalised in response to changes in policy and consumer expectations. Out of sight, is therefore no longer out of mind.