To evaluate a company many methods can be used. This assignment focuses on the three important ones the discounted cash flow entity and equity method as well as the multipliers method. All of them are explained and calculated on the example of Audi AG. The different values which are resulting are discussed and compared to each other.
After that a conclusion of the whole assignment is given by the author.
Table of Contents
1 Introduction
1.1 Problem Definition
1.2 Methodology
2 Audi AG and the Automotive Industry
3 Corporate Evaluation of the Audi AG
3.1 Reasons for Business Evaluation
3.2 Methods of Business Evaluation
3.3 Cash Flow Analysis
3.4 Discounted Cash Flow Evaluation
3.4.1 Income Approach
3.4.2 Entity Approach: Explanation and Calculation
3.4.3 Equity Approach: Explanation and Calculation
3.5 Multiples Evaluation: Explanation and Calculation
3.6 Critical Consideration of Evaluation methods
4 Conclusion
Objectives and Topics
This assignment aims to conduct a comprehensive corporate valuation of Audi AG to inform an investment decision. By applying and comparing three distinct financial valuation methodologies, the author assesses the company's value to determine the feasibility of purchasing its shares.
- Discounted Cash Flow (DCF) - Entity Approach
- Discounted Cash Flow (DCF) - Equity Approach
- Multiples Evaluation (PSR and PER)
- Comparative analysis of industry peers
- Critical review of evaluation techniques
Excerpt from the Book
3.4.2 Entity Approach: Explanation and Calculation
Among the different variants of the DCF-methods, the WACC is the in valuation practice - as well as in the literature on financial business valuation - popular concept. According to the WACC approach "the gross company value is determined at the present value of future free cash flows to be discounted at the weighted average cost of capital of the company.” This DCF-method supposes basically an unlimited duration of the business activity, which is differentiated because of the uncertainty in planning for future success between the actual period and the period after the end of the planning horizon.
Therefore, the value of the company is composed of the present value of free cash flows within the planning period as well as the discounted to the valuation date residual value for the period after the end of the planning horizon.
In general, the length of the explicit planning period should match the planning horizon of the company which is usually recognized in the evaluation of companies for five to ten years.
The sum of the present value of free cash flows, the present value of the residual value and the market value of non-operating assets can be obtained according to the following formula to the gross value of the company: WACC = (EC / EV * re) + (DC / EV * (rd * (1-t)))
Summary of Chapters
1 Introduction: Provides the motivation for valuating Audi AG for investment purposes and outlines the problem definition and research methodology.
2 Audi AG and the Automotive Industry: Presents the company background, its management structure, strategic goals, and market position within the automotive sector.
3 Corporate Evaluation of the Audi AG: Details the primary valuation methods including DCF (Entity/Equity) and multiples (PSR/PER), while providing calculations and a critical analysis of their applicability.
4 Conclusion: Consolidates the findings from the different valuation approaches and discusses the variability of results based on chosen methods and input data.
Keywords
Audi AG, Corporate Evaluation, Discounted Cash Flow, WACC, Flow to Equity, Multiples Evaluation, PSR, PER, CAPM, Financial Management, Business Valuation, Equity Capital, Debt Capital, Enterprise Value, Investment Decision.
Frequently Asked Questions
What is the core focus of this assignment?
The paper focuses on the corporate evaluation of Audi AG to assess its value for a potential share purchase.
Which central topics are addressed?
The study covers business valuation principles, cash flow analysis, and the application of various quantitative financial models.
What is the primary research goal?
The goal is to calculate the value of Audi AG using different methods to support an informed investment decision.
Which scientific methods are employed?
The author uses the Discounted Cash Flow (DCF) method (Entity and Equity approaches) and the Multiples method (PSR and PER ratios).
What content is covered in the main section?
The main part includes the introduction of Audi AG, detailed mathematical calculations for the DCF and Multiples approaches, and a critical analysis of these techniques.
Which keywords characterize this paper?
Key terms include Corporate Evaluation, DCF, WACC, Multiples, Audi AG, and Financial Management.
How does the entity approach differ from the equity approach?
The entity approach determines the gross corporate value based on total cash flows, whereas the equity approach specifically values the equity stake by discounting cash flows remaining for equity investors.
Why are multiple valuation methods used instead of one?
Using multiple methods helps to highlight how variable the results can be, as each technique relies on different assumptions and input variables, thus providing a broader view for the investor.
- Quote paper
- Julia Teigeler (Author), 2014, Corporate Evaluation of the Audi AG, Munich, GRIN Verlag, https://www.grin.com/document/271842
