This study gives an overview of the various aspects of the company valuation. It deals with the reasons for company valuations, how these can be classified and what the purpose of company valuations is. It also presents various methods of valuation of a company.
There can be significant differences between the value and price of a company. At the stock market, the equity value of a company is determined in a market economy manner: the number of shares is calculated on the basis of the share price, that is the price resulting from the supply and demand from the shareholders, or the price that a shareholder is prepared to pay for a share in the company.
The focus of this work lies on the discounted cash flow (DCF) method and the multiple method. The DCF method focuses on the WACC approach, the multiple method on the EBIT and sales multiple. The paper also applies the methods presented in the previous sections in practice. Three German DAX-listed automobile manufacturers, BMW, Daimler and Volkswagen, are evaluated using these two methods, and the results are then compared. The focus here lies on various scenarios in which the parameters of the valuation methods are adjusted. The three companies are compared with each other within the methods and between the different methods.
Table of Contents
1 Introduction
2 Valuation
2.1 Reasons for the valuation and its purpose
2.2 Methods for valuation
2.3 Total valuation method
2.3.1 German income approach
2.3.2 The discounted cash flow method
2.3.3 The comparison method
2.4 Individual valuation method
2.5 Other methods
3 The Discounted Cash Flow approach
3.1 Calculation of cash flow
3.2 Free cash flow approach
3.3 Total cash flow approach
3.4 Adjusted present value approach
3.5 Flow to equity approach
3.6 Pros and cons
4 The Multiple Method
4.1 Methods of Multiple Valuation
4.2 Process of Multiple Valuation
4.2.1 Analysis of the company
4.2.2 Multiples selection
4.2.3 Selection peer group
4.2.4 Valuation
4.2.5 EBIT Multiple
4.2.6 Sales Multiple
4.3 Pros and cons
5 Practical Valuation for Three Automotive Manufacturers
5.1 General Approach and Database
5.2 Market Growth for the Automotive Market
5.3 Discounted Cash Flow Valuation
5.3.1 Calculation of Free Cash Flow, WACC and Net Debt
5.3.2 DCF Valuation of the BMW Group AG
5.3.3 DCF Valuation of Daimler AG
5.3.4 DCF Valuation of Volkswagen AG
5.3.5 Overview of DCF Scenarios 1-3
5.4 Multiple Valuation with the EBIT and Sales Multiples
5.4.1 FINANCE Multiples
5.4.2 Multiple Valuation of the BMW Group AG
5.4.3 Multiple Valuation of Daimler AG
5.4.4 Multiple Valuation of Volkswagen AG
5.4.5 Overview of Multiple Scenarios
5.5 Summary
6 Conclusion
Research Objective and Key Themes
The primary objective of this study is to provide a comparative analysis of corporate valuation methodologies, specifically focusing on the Discounted Cash Flow (DCF) method and the multiple-based valuation approach, applied to three major German automotive manufacturers.
- Theoretical foundations of DCF and Multiple valuation methods.
- Practical application of valuation techniques to BMW, Daimler, and Volkswagen.
- Scenario analysis for adjusted planning parameters and assumptions.
- Comparative performance and impact of valuation parameters on enterprise value.
Excerpt from the Book
The Discounted Cash Flow approach
The discounted cash flow method is one of the classic methods of a company valuation. The enterprise value is calculated by discounting the forecast cash flow surpluses, see Figure 5. The interest rate used is the return demanded by the investors.
Generally, a DCF model requires the following inputs: Future cash flows (expected) FCFE, TCFE; Any growth rate of the cash flows g; The required rate of return, which is used as a discount rate r.
Under the generic term discounted cash flow (DCF) method, four different approaches can be distinguished: Free cash flow approach (FCF), this approach is used in the practical part of the thesis and is presented in Chapter 3.2; Total cash flow approach (TCF), presented in Chapter 3.3; Adjusted present value approach (APV), presented in Chapter 3.4; Flow to equity approach (FTE), presented in Chapter 3.5.
These four approaches are divided into an entity approach and equity approach. Figure 6 shows a schematic representation of this. In the entity methods (FCF, TCF, APV), the total enterprise value is calculated and the debt capital value is then deducted from this. The equity method (FTE) directly calculates the equity value.
Summary of Chapters
1 Introduction: Provides an overview of the significance of company valuation and outlines the focus on DCF and multiple methods for three German automotive manufacturers.
2 Valuation: Discusses the theoretical necessity and classification of business valuation events, distinguishing between periodic, aperiodic, dominated, and non-dominated scenarios.
3 The Discounted Cash Flow approach: Details the conceptual framework of the DCF method, including various calculation approaches like FCF, TCF, APV, and FTE, and evaluates their advantages and disadvantages.
4 The Multiple Method: Explains the market-oriented valuation approach using multiples, covering the selection of peer groups and the calculation mechanics for EBIT and Sales multiples.
5 Practical Valuation for Three Automotive Manufacturers: Applies the discussed theoretical models to real-world data from BMW, Daimler, and Volkswagen using various scenarios and sensitivity analyses.
6 Conclusion: Synthesizes the results of the comparative study, noting that while DCF and multiple methods offer distinct perspectives, both are vital for a comprehensive market assessment.
Keywords
Company valuation, Discounted Cash Flow, Multiple valuation, EBIT, Sales, Free Cash Flow, WACC, BMW, Daimler, Volkswagen, Enterprise Value, Equity Value, Market Capitalization, Scenario analysis, Automotive industry.
Frequently Asked Questions
What is the core focus of this study?
The study provides a comprehensive comparative overview of corporate valuation techniques, specifically the Discounted Cash Flow method and the multiple valuation approach within the context of the automotive industry.
What are the central thematic areas?
The main themes include theoretical frameworks for enterprise valuation, the practical application of these models to public companies, and sensitivity testing through various financial scenarios.
What is the primary research objective?
The objective is to apply and compare two major valuation methods—DCF and Multiples—to assess the valuation results of three prominent German automotive manufacturers: BMW, Daimler, and Volkswagen.
Which scientific methodology is employed?
The work utilizes a combination of literature review for theoretical foundations and an empirical, scenario-based application of valuation formulas (e.g., WACC, EBIT/Sales multiples) to historical financial data.
What topics are covered in the main section?
The main section covers the conceptual classification of valuation, the detailed mechanics of DCF (FCF, TCF, APV, FTE), the process of selecting and applying market multiples, and detailed case studies for the three manufacturers.
Which keywords define this work?
Key terms include Company valuation, Discounted Cash Flow (DCF), Multiple valuation, EBIT multiples, Sales multiples, Enterprise Value, and automotive sector performance metrics.
How is the DCF method adjusted for the specific needs of this paper?
The paper uses the FCF approach within a two-phase model, incorporating specific assumptions regarding revenue growth (CAGR), WACC, and Net Debt to derive enterprise and equity values across different scenarios.
Why are multiple valuation results compared with DCF results?
The comparison serves to validate the internal consistency of the future-oriented DCF approach against current market-based price assessments (Multiples) and to highlight the impact of varying planning assumptions.
- Arbeit zitieren
- Jan Grävendieck (Autor:in), 2019, Company valuation. The discounted cash flow method versus the multiple method, München, GRIN Verlag, https://www.grin.com/document/494412
