[rajesh_ano]

can you tell me sth about futures first . i want to know abt the job profile and company. plz help me
www.futuresfirst.in
Futures First Info Services Pvt. Ltd. (Futures First) was established in 2004 to trade Futures contracts and other financial instruments on exchanges located in Europe and the USA . The Company set up its first office in Gurgaon, India, and trading operations commenced in July 2004 with fifteen graduate recruits.

[harshg]

send an email to the recruiters (recruitment@futuresfirst.in) yaar ... why post here.

[sameersinghvi]

hey guys.....this thread is amazing....So much knowledge...good
People keep up the good work....In my 1st Year I had done persentation on Holcim - ACC Deal....but what Kapil has explained is much more than that....
I believe Equity Research is the first step to go towards IB.....So we can Discuss various concepts and hassels abt Valuation in this thread.....

Keep Rocking
Sameer

Originally Posted by goelrinku

Investment banking is supposed to be a very well paying job. This implies the investment banking firms make a lot of money in deals.

The thing i wanted to know is how is their fees calcualted during M&A. Is it a lumpsum amount amounting to some percentage of the deal or a fixed amount not depending upon the deal.

Also, if suppose one firm is acquiring 20% of another firm, then on what basis do the investemnt banking firms charge fees from both the clients?

[ahmadazeem777]

Originally Posted by sameersinghvi

hey guys.....this thread is amazing....So much knowledge...good
People keep up the good work....In my 1st Year I had done persentation on Holcim - ACC Deal....but what Kapil has explained is much more than that....
I believe Equity Research is the first step to go towards IB.....So we can Discuss various concepts and hassels abt Valuation in this thread.....Keep Rocking,Sameer

Nice Initiative COunt me in for the same.

Thankx
Azeem

[dushyant bhatia]

Hey peeps..
lets revive this thread..
lets discuss about various concepts of valuations..
ne1 who is in the industry workin as an equity research analyst...
plz do share ur knowledge..
let me see how many replies do i get n then we shall start wid the discussions..

cheerz

[Tumtum]

Buddy,

as far as I know, the typical valuation model that finds maximum acceptance in an IB is the DCF model.

Not much importance is attached to Relative Valuations when it comes to a proper M&A deal and related valuation. It is only used as a reference to see whether the DCF assumptions and the valuation are in line/at a premium/discount to peers or not.

Again when we talk of DCF, then depending on the capital structure, there are two major models in use viz the Free Cash Flow to Equity (FCFE) and Free Cash Flow to Firm (FCFF) and again FCFF finds maximum acceptance except if it is an all equity financed company (which is not seen often).

As regards the Relative Valuation models, people in IBs do give a cursory look to the multi stage P/E Valuation model (which factors in the historical and perpetual growth rates), EV/EBITDA (used mainly if its a highly capital intensive company with large depreciation write-offs....commonly seen in case of telecom equipment and services providers and IT companies) and MV/EBITDA, Dividend Discount Model (2 Stage and Multi Stage DDMs) but only for reference purposes.

I would love to discuss out all this stuff and would love it even more if all of us actively participate.

Looking for more discussions,

Tumtum.

[dushyant bhatia]

Originally Posted by Tumtum

Buddy,

as far as I know, the typical valuation model that finds maximum acceptance in an IB is the DCF model.

Not much importance is attached to Relative Valuations when it comes to a proper M&A deal and related valuation. It is only used as a reference to see whether the DCF assumptions and the valuation are in line/at a premium/discount to peers or not.

Again when we talk of DCF, then depending on the capital structure, there are two major models in use viz the Free Cash Flow to Equity (FCFE) and Free Cash Flow to Firm (FCFF) and again FCFF finds maximum acceptance except if it is an all equity financed company (which is not seen often).

Tumtum.

gud to see ppl participating in the discussion.
hey bro..
Speakin bout dcf (For those who dont know about it- it is discounted cash flow analysis- a method of valuation),jus wanted to know that after estimating the cash flows what method is to be used to calculate the rate of discount. i mean there are various methods such as cost of equity, riskfree rate,beta etc. Is there any method which is universally accepted of it depends upon the industry.
Also wanted to know whether optimistic or realistic approach is to be adopted for calculatin the cash flows
Sum 6-8 mnths ago there was a seminar on IB.. in my college.. Some investment bankers metioned that both fundamental analysis( such as ebitda,p/e and other ratios) and technical analysis(charting etc) is imp.. Is it only used to calculate the operational effeciency, profitability etc of a firm or does it hv ne more relevance?
Also Im confused b/w the 2 main methods of valuation..i.e. fcfe and dcf
Iknow their formulas but dont know how they differ. plz expalin wid a simple example.
It is also told that fcfe method of valuation gained popularity as the dividend discount model's usefulness became increasingly questionable.. is it true??
plz do reply..

n guys plz do participate in the discussions( this tumtum seems to be an expert in this..jitna knowledge nikalva sakte ho nikalvao.. phir shayad chance nahin mile hehe j/k.)
neway tumtum keep up the gud work

cheerz

[Tumtum]

Originally Posted by dushyant bhatia

gud to see ppl participating in the discussion.
hey bro..
Speakin bout dcf (For those who dont know about it- it is discounted cash flow analysis- a method of valuation),jus wanted to know that after estimating the cash flows what method is to be used to calculate the rate of discount. i mean there are various methods such as cost of equity, riskfree rate,beta etc. Is there any method which is universally accepted of it depends upon the industry.
Also wanted to know whether optimistic or realistic approach is to be adopted for calculatin the cash flows
Sum 6-8 mnths ago there was a seminar on IB.. in my college.. Some investment bankers metioned that both fundamental analysis( such as ebitda,p/e and other ratios) and technical analysis(charting etc) is imp.. Is it only used to calculate the operational effeciency, profitability etc of a firm or does it hv ne more relevance?
Also Im confused b/w the 2 main methods of valuation..i.e. fcfe and dcf
Iknow their formulas but dont know how they differ. plz expalin wid a simple example.
It is also told that fcfe method of valuation gained popularity as the dividend discount model's usefulness became increasingly questionable.. is it true??
plz do reply.

n guys plz do participate in the discussions( this tumtum seems to be an expert in this..jitna knowledge nikalva sakte ho nikalvao.. phir shayad chance nahin mile hehe j/k.)
neway tumtum keep up the gud work

cheerz

I don’t know where the confusion stands my friend!
Like I said earlier, valuation consists of 2 approaches....

1] Relative Valuation Approach
2] DCF Approach

Relative valuation deals with peer comparison on some important parameters (known as multiples like p/e multiple, ev/ebitda multiple etc) to decide if a company is "overvalued" or "undervalued" vis-à-vis it peer group or industry. In other words, the company is valued in relation to a target group on certain basic parameters, which are as per the convenience of the valuer. Just take an example of b-school rankings. While IIMA is at the top, other schools are compared to it on certain parameters such as batch diversity, no of years of work ex a student has on an average before joining MBA , b-school infrastructure etc to give an idea where another b-school stands vis-à-vis IIMA. A similar funda is adopted in case of relative valuations.

The DCF approach contains 2 methods of valuing the company.

a] FCFE (Free Cash Flow to Equity)
b] FCFF (Free Cash Flow to Firm).

So there should not be confusion between FCFE and DCF because FCFE is a subset of DCF methodology.

When you say you are confused between the two despite knowing their formulae, then I have an idea to get the concept clear for you.

Refer to the FCFE formula......what is the discount rate? It is the COST OF EQUITY. Why?
Because the Free Cash Flow you derive is solely attributable to the equity holders as per the FCFE model and no one else!! So you have to discount it by the COST OF EQUITY. If you attribute the cost of debt to it, then it will NOT give a correct valuation from the perspective of an equity investor if the company is solely financed using equity (i.e. if it does not contain any debt)!! So this method uses cost of equity as the discount rate and works good only in cases of all-equity financed companies….make that clear. Now you will ask as to how is the cost of equity determined. Right?
The answer is simple…..we all have studied the CAPM. What is it? It’s a simple regression equation!!!

Ke = Rf + β(Rm – Rf).

In other words, it is expressed as a function of the risk free rate, systematic risk and market premium. In our company, while actually preparing a valuation model, we take the 10 year benchmark bond rate as the risk free rate. For risk premium, we follow an approach similar to the one proposed by Aswath Damodaran…..that which depends upon a country to country basis. In other words, AD, in his study has classified risk premiums of different countries and we make use of that. Setting all the data in the right place, we get the “Ke”. We discount it by the standard discounting formula, then find the terminal value by factoring in the perpetual growth rate and bang! We have the value of the company. Just divide this value by the no of shares outstanding and you have the per share value. Compare it with the current share price and you know whether its under or over valued.

Regarding the FCFF……now the distinction will be simpler. Just look at the discount rate. What is it? Isn’t it the post-tax Weighted Average Cost of Capital (mind you …not the Ke). In other words, the discount rate in FCFF model uses not only just Ke, but also Kd (Cost of Debt) in the proportion of their weights in the overall capital structure.
So the discount rate you use in FCFF is WACC, which is Ke x We + Kd x Wd (1-T). Now you may ask as to why we use post-tax WACC. The answer is simple….it is because a company which has debt on its balance sheet also gets an “Interest Tax Shield”.

Hope I have been able to clear ur doubts.
If you still have any, then please let me know. I am an analyst and this is what I do all the day so I will be able to help you out better.

Regards.

[Tumtum]

Originally Posted by Tumtum

I don’t know where the confusion stands my friend!
Like I said earlier, valuation consists of 2 approaches....

Regards.

Not many seem interested in valuation. Looks like that.

Anyways, feel fre to pm me in case u have any queries.

Regards,

Tumtum.

[dushyant bhatia]

Originally Posted by Tumtum

I don’t know where the confusion stands my friend!
Like I said earlier, valuation consists of 2 approaches....

1] Relative Valuation Approach
2] DCF Approach

Regards.

dude this is awesome stuff..
i wonder y there r no replies..
neways I shall be posting ma doubts as and when they occur
can u suggest ne book which has a-z of "how to value a co."
thnx a lot for sparing so much time on this..
help truly appreciated

cheerz