1. Institut for Regnskab, Tom Hansen Corporate Valuation 2002-2 Current market value (slide 3, 1) Evaluating performance in the stock market. Cash flow of corporation Comparison of performance in the stock market compared to comparable companies (peer group) P/E, Market Value / Book Value Actual performance vs. expectations (communication with the stock market) Opinions of share analysts Why has the share price developed as it has?

2. Institut for Regnskab, Tom Hansen Corporate Valuation 2002-2 “As Is”-value (slide 3, 2) Evaluating the current intrinsic value of the company: Divide the company into appropriate business units Estimating cash flows in the future based on historic performance Estimating cash flow in the future based on current business plans / budgets Using an appropriate discount rate In which business units is value created / destroyed? Why the difference between market value and “as is”- value?

3. Institut for Regnskab, Tom Hansen Corporate Valuation 2002-2 Value with internal improvement (slide 3, 3) In which business units can internal improvements increase value (compared to “as is”)? More aggressive plans and strategies Revenues side (growth) ·Prices, advertising, R&D Cost side (operating margins) ·Reduce costs More effective use of capital Benchmarking against competitors is an effective tool here. New value?

4. Institut for Regnskab, Tom Hansen Corporate Valuation 2002-2 Value with external improvements (slide 3, 4) Evaluating the value of the business units from an external perspective: Sale to a strategic buyer Flotation / spin-off Management buyout Liquidation What value does the business units have to other companies? Knowing the markets, competitors and the stock market is a prerequisite to doing such analyses. New value?

5. Institut for Regnskab, Tom Hansen Corporate Valuation 2002-2 Value with new growth opportunities (slide 3, 5) Long-term growth opportunities: Exploiting the strength of the company (Brands, distribution channels, people, customers, etc.) in the long run, by: Buying other companies Focused internal growth New value?

6. Institut for Regnskab, Tom Hansen Corporate Valuation 2002-2 Value of financial engineering (slide 3, 6) Is the debt / equity relationship to conservative Exploiting tax shield on debts, by: Share buy backs Extraordinary dividends New value?

7. Institut for Regnskab, Tom Hansen Corporate Valuation 2002-2 Definitions - EP & DCF (slide 4) Invested capital = net working capital + property, plant and equipment ROIC = operating profit (after tax) / invested capital Free cash flow = operating profit (after tax) + (depreciation - investments) Opportunity cost of capital: the yield you could obtain by investing the capital the best alternative way (WACC). We will return to precise definitions of ROIC, Free cash flow, economic profit, etc. in later lectures (chapters 8, 9 & 10)

8. Institut for Regnskab, Tom Hansen Corporate Valuation 2002-2 Life cycle of corporate financial lives (exhibit 3) (slide 17, 1) Growth rate of sales (%) Return on net assets (%) IV Liquidation position I Building market position II Mature market position III Harvesting market position A D C B E Surplus of funds

9. Institut for Regnskab, Tom Hansen Corporate Valuation 2002-2 Change of position (slide 17, 2) Growth rate of sales (%) Return on net assets (%) IV I II III X Goal Current X position