valuation and financial analysis

Financial Analysis and Valuation – Opportunities and Challenges by Dr Shantha P Yahanpath Director, Agape International and Lecturer at Sydney Business School Australia

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Page 1: Valuation and financial analysis

Financial Analysis and Valuation – Opportunities and Challenges

byDr Shantha P YahanpathDirector, Agape International and Lecturer at Sydney Business


Page 2: Valuation and financial analysis

Key issues Forecasting or guessing Historical background Development of theory Efficacy of models Practical relevance Paradigm shift and velocity of Change Future opportunities

Page 3: Valuation and financial analysis

Forecasting or guessing

A child was asked what her future profession would be…and she replied…my future profession is not here today…it is not known to us today but it will be there when I get there

Page 4: Valuation and financial analysis

Historical background Constant growth models Variable growth models CAPM - M Miller, Sharp, Lintner, Black and

Scholes Price:earnings models Cashflow models Asset-based models Experience based models

Page 5: Valuation and financial analysis

Forecasting involves:

Estimation Guessing Based on information available at the

time of forecasting

Page 6: Valuation and financial analysis

Theoretical issues Mathematical complexity by-passing

plausibility Crude assumptions distorting the value of

inputs Difficulty in valuing intangible assets like HR

resources eg. managerial talent, brand value Valuing corporate activity eg. M&A Impact of future competition

Page 7: Valuation and financial analysis

Efficacy of models depends on: Theoretical plausibility Explanatory ability Practical relevance Accuracy of parameter estimates Forecasting ability Simplicity

Page 8: Valuation and financial analysis

Practical relevance - accuracy Spread of valuation ranges Technological developments Changing business paradigms -

velocity of change Valuation of knowledge Effect of assumptions

Page 9: Valuation and financial analysis

Paradigm Shift – Intellectual capital rules Soil to steel and steel to software - agriculture

to manufacturing and manufacturing to information technology

Brains matter more than brawn - how much you know maters more than how much you can lift

Innovation matters more than mass production – a product’s value is measured not in kilos but by the weight of ideas that went into making it

Information matters most of all – how easily it can travel through the economy and how well it is used

Page 10: Valuation and financial analysis


Participation of multi-disciplinary teams Problem oriented research Re-visit the past Challenge to academia - bring back relevance Invest more effort in alternative forecasting

and Bayesian approach Appropriate models for small businesses

Page 11: Valuation and financial analysis

Velocity of change – enemy or friend?

Some models were developed during “industrialisation”

Such models have been “creatively destructed” - models have gone past their use by date$FILE/EY-CIO-The-velocity-of-change.pdf

Page 12: Valuation and financial analysis

Company ValuationsIs future past?

Back to Basics? Are we back to judgemental approach?