Definitions of Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date. It is the value that is used in financial reporting….
Going Concern vs. Liquidation Value
The going concern assumption is the assumption that a company will continue being in operation in the immediate future. The value of a company under the going concern assumption is known as the going concern value. On the other hand,…
Valuation, Intrinsic Value, and Sources of Perceived Mispricing
Valuation Valuation is the process of estimating the worth of an asset-based on: Variables related to future investment returns (absolute valuation). Comparison with similar assets (relative valuation). Estimates of the immediate liquidation process. Intrinsic Value and Perceived Mispricing Intrinsic value…
Study Notes for CFA® Level II – Equity Valuation – offered by AnalystPrep
Reading 22: Equity Valuation: Applications and Processes -a. Define valuation and intrinsic value and explain sources of perceived mispricing; -b. Explain the going concern assumption and contrast a going concern value to a liquidation value; -c. Describe definitions of value…
Reasons for Restructuring
Sometimes mergers do not work out as expected, or the companies fail to get the synergies they had estimated, and they end up undoing the merger or restructuring. The following are some of the common reasons for restructuring: Change in…
Corporate Restructuring: Equity Carve-Outs, Spin-Offs, Split-Offs, and Liquidation
Corporate restructuring is the act of modifying a company’s capital structure or operations by selling, splitting off, or shedding operating assets. Divestiture occurs when a company decides to liquidate or spin-off a division or a subsidiary. Restructuring can take the…
Characteristics of M&A Deals that Create Value
The following are characteristics of deals that create value: The buyer is strong: Acquirers with a high average growth rate three years before the merger will earn significant positive returns on the announcement. The transaction premiums are relatively low: Acquirers…
Effects of Price and Payment Method in M&A Transactions
The form of payment and the price in a merger determine the distribution of benefits and risk. Acquiring managers will prefer to pay with cash if they are confident that estimated synergies will be realized. However, the target management will…
Estimated Post-Acquisition Value
In a merger and acquisition transaction, the acquirer will always want to get the best possible price for the target, while the target will always want to sell at a higher price. As such, the acquirer usually pays a premium…
Target Company Valuation
Discounted cash flow analysis, comparable company analysis, and comparable transactions are valuation techniques used by companies to value companies’ mergers and acquisitions. 1. Discounted Cash Flow (DCF) Analysis Discounted cash flow (DCF) analysis derives an estimated company’s estimated value by…
