Part #1 – Company Model and DCF Valuation Objective Produce a company model and provide a DCF valuation of your company reflecting estimates of future cash flows from current operations. What You Need To P

Part #1 – Company Model and DCF Valuation Objective Produce a company model and provide a DCF valuation of your company reflecting estimates of future cash flows from current operations. What You Need To Prepare 1. Company model – integrated financial accounts, forecasts, valuation, summary tables and charts 2. Explanatory notes and assumptions – to be incorporated within the model (excel file) as needed Guidelines Part #1 involves building the company model that provides the foundations for your future analysis. Hence it is highly recommended that you read the guidelines for all assignments before starting work. Ideally you would be advanced in your research into the company and industry for Part #1, so that you are well informed when structuring your model and making any initial forecasts. Company Model The company model itself is the major item to be prepared for Part #1. It is envisaged that teams will build upon the KGW model template found on Wattle. Augmentations to the KGW model should facilitate an insightful and meaningful analysis of the company, focusing on key drivers of the business and the company valuation. The augmented model should contain the following: • A meaningful amount of historical data • Separate analysis of key business segments (all linked into central accounts) • Model focused around key drivers of the overall business and/or its segments • Estimation of continuing value (making clear assumptions about future return on capital, etc) • Valuation of non-operating assets (i.e. other items of value not included in DCF valuation) • Estimation of cost of capital (use a separate worksheet, and justify inputs where appropriate) • Division of DCF-based enterprise valuation into equity and non-equity claims • Estimate of equity value per share • Assumptions and inputs clearly identified (ideally consolidated into separate worksheet) • Analysis of ROIC, including decomposition (important for linking valuation to business outlook) • Summary tables and charts (including charts of key value drivers / ROIC decomposition) It is highly recommended that a separate sheet be established to carry all key input assumptions (e.g. margin components, growth rates, capital spending determinants, cost of capital inputs, etc), as well as to gather the main output, with all being linked to the model. It is much easier to do sensitivity analysis and updates under such a structure, rather than having the main inputs and outputs spread throughout the model. Using a distinct colour for input assumptions is also a useful practice. Explanatory notes should be included within the model itself, as needed for the marker (and other team members) to understand the work done. Notes should identify items such as key assumptions, sources, methods used, basis for forecasts, etc. Ways to include explanatory notes include: – Create a “Notes” column, perhaps to the right of the modelled cells – Insert a text box (see “Insert” tab) – Insert comments within the relevant cell itself (see “Review” tab)