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Class notes Strategic Management Valuation, ISBN: 9781119611868
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Class notes Strategic Management Valuation, ISBN: 9781119611868
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cash flow perpetuity formula(fcf)EBITA: earning before deduction of Interest, taxes and amortization.
Growth rate formula: Return on invested capital(ROIC)* investment rate g=ROIC*IR
ROIC>WACC favourable
ROIC =WACC any additional growth would not create or destroy value
ROIC<WACC this will destroy value
FCF: free cash flow
NOPLAT: net operating profit less adjusted taxes but before any interest payments.
FCF defined in context of NOPLAT and INVESTMENT rate
FCF = NOPLAT- Net Investment
= NOPLAT – (NOPLAT*IR)
=NOPLAT * (1-IR)
NOPLAT (g)-projected growth ,ROIC –return on invested capital and investment rate(IR)
g=ROIC*IR
IR= g
ROIC
FCF new formula
FCF= NOPLAT*(1-g/ROIC)
Value=NOPLAT(t=1) * 1- g
ROIC
WACC-g
Net investment = Invested capital (t+1) – Invested capital (t)
Economic profit = Invested capital * (ROIC-WACC)
Economic profit = NOPLAT-capital charge
Economic profit = NOPLAT- (invested capital * WACC)
Value = Invested capital + present value of its projected Economic profit.
Present value of Economic profit = EP
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