VALUATION METHODS AND SHAREHOLDER VALUE CREATION

INDEX OF TABLES

Chapter 1. Shareholder Value Creation. Basic concepts
Table 1.1. General Electric. Equity market value and increase of equity market value during each year
Table 1.2. General Electric. Increase of equity market value and shareholder value added each year
Table 1.3. Shareholder return of General Electric
Table 1.4. Yield on 10-year Treasury bonds and required return to equity of General Electric
Table 1.5. General Electric. Evolution of the increase of equity market value, shareholder value added, and created shareholder value
Table 1.6. Increase of equity market value, shareholder value added, and created shareholder value
Table 1.7. General Electric's ROE and shareholder return
Table 1.8. Created shareholder value and market capitalization of selected American companies
Table 1.9. Shareholder return of selected companies (average annual return)
Tabla 1.10. Top ten value creators and value destroyers in 2000, 1999 and 1998
Tabla 1.11. Value creation of the S&P 500

Chapter 2. Company valuation methods
Table 2.1. Alfa Inc. Official balance sheet
Table 2.2. Alfa Inc. Adjusted balance sheet.
Table 2.3. Market value/book value (P/BV), PER and dividend yield (Div/P) of different national stock markets.
Table 2.4. Alfa Inc. Income statement.
Table 2.5. Relationship between return and the price/sales ratio.
Table 2.6. Income statement for XYZ.
Table 2.7. Free cash flow of XYZ, SA.
Table 2.8. Alfa Inc. Value of the equity according to different methods.
Table 2.9. Valuation of a company as the sum of the value of its divisions.
Table 2.10. Factors influencing the equity's value (value drivers)

Chapter 3. Price-earnings ratio, profitability, cost of capital and growth
Table 3.1. PER of six companies. Influence of growth and return on investments on the PER.
Appendix 3.1. Price per share, market capitalization, earnings per share (EPS), dividend yield and PER of the companies included in the Euro Stoxx 50 on 30 May 2001
Appendix 3.2. Breakdown of the price per share between no-growth price and growth value; and breakdown of the PER (Euro Stoxx 50 companies on 30 May 2001)

Chapter 4. Splitting the price-earnings ratio: franchise factor, growth factor, interest factor and risk factor
Table 4.1. PER, FF and G of six companies.
Table 4.2. PER* and FF* of six companies.
Table 4.3. Equity value generation over time. Present value of the dividends until the year indicated.

Chapter 5. Market value and book value
Table 5.1. Evolution of the E/Ebv, PER and ROE of British Telecom, General Electric, Microsoft and Cisco
Table 5.2. Fama and French (1992). Relationship between market-to-book ratio and shareholder return.
Table 5.3. Sealed Air. 1987 to 1997
Table 5.4. Leveraged recapitalizations. Shareholder return in the year after the Leveraged Recap.
Appendix 5.1. Market value (E) and book value (Ebv) of selected US companies in December 1995 and July 2001

Chapter 6. Dividends and market value
Table 6.1. Dividend distribution by companies listed on the main US stock markets (NYSE, AMEX and NASDAQ)
Table 6.2. Selected financial data on the companies listed on the main US stock markets (NYSE, AMEX and NASDAQ).
Table 6.3. Growth of the nominal and real dividends per share in several European stock markets (1976-1996).

Chapter 7. Interest rates: their importance in the valuation
Table 7.1. Rating definitions
Table 7.2. Bond default spread according to rating and maturity: difference between the interest rate on a corporate bond and the interest on a Treasury bond having the same maturity.

Chapter 8. Valuation using multiples. How do analysts reach their conclusions?
Table 8.1. Most commonly used multiples
Table 8.2. Most commonly used multiples in different industries
Table 8.3. Mean multiples of different American industries.
Table 8.4. Multiples of European utilities (excluding the English utilities).
Table 8.5. Multiples of English utilities.
Table 8.6. Multiples of construction companies.
Table 8.7. Multiples of hotel companies.
Table 8.8. Valuation by multiples of telecommunications companies.
Table 8.9. Multiples of cellular phone companies.
Table 8.10. Multiples of Spanish and Portuguese banks.
Table 8.11. Multiples of Internet companies in 1999 and 2000
Table 8.12. Average volatility of several parameters used for multiples. 26 Spanish companies. 1991-1999.
Table 8.13. North American analysts' recommendations. 1989-1994.
Table 8.14. Analysts' recommendations on Spanish stocks.

Chapter 9. Cash flow and net income
Table 9.1. FausCommerce. Income Statements
Table 9.2. FausCommerce. Balance Sheets
Table 9.3. FausCommerce. Free cash flow, equity cash flow, debt cash flow and capital cash flow
Table 9.4. FausCommerce. Cash inflows and cash outflows. New funding.
Table 9.5. FausCommerce. Ratios
Table 9.6. Forecast income statements for Santoma & Co.
Table 9.7. Forecast balance sheets for Santoma & Co.
Table 9.8. Forecast cash flows for Santoma & Co.

Chapter 10. Inflation and value
Table 10.1. Campa Spain.
Table 10.2. Campa Argentina.
Table 10.3. Cash flows and IRR of Campa Spain and Campa Argentina
Table 10.4. Differences in the valuation of Campa Spain and Campa Argentina with different discount rates.
Table 10.5. Campa Argentina with restatement.
Table 10.6. Cash flows and IRR of Campa Spain and Campa Argentina (in current pesos and constant pesos) without and with restatement.
Table 10.7. Annual inflation in Spain, Argentina, Peru, Chile and Mexico
Table 10.8. Credit rating histories of Argentina and Spain rated by Standard & Poor's as of August 3, 2001. Long-Term/Outlook/Short Term.

Chapter 11. Cost of equity: beta and risk premium
Table 11.1. Main findings of Fama and French's article (1992).
Table 11.2. Qualitative beta. MASCOFLAPEC Method
Table 11.3. US stock market. Average (arithmetic average and geometric average) in different periods of the annual return of the market, the 3-month risk-free rate (T-bills) and the 30-year risk-free rate (T-bonds).
Table 11.4. US stock market. Average (arithmetic average and geometric average) in different periods of the market premium over the 3-month risk-free rate (premium bills) and the 30-year risk-free rate (premium bonds).
Table 11.5. US stock market. Average (arithmetic average) in different periods of the equity premium above 3-month bills (premium bills) and 30-year bonds (premium bonds).
Table 11.6. Annual geometric average differential return in the year 2000 of the Stock market versus long-term Government bonds in several countries.
Table 11.7. Correlation matrix. Monthly data, December 1991-August 2001.
Table 11.8. Forecasts made at the end of 1997 by analysts about the level of the Dow Jones at the end of 1998.

Chapter 12. Valuations of Internet Companies: The case of Terra -Lycos
Table 12.1. Twelve projections of sales, net income and EBITDA made by different companies
Table 12.2. Projections of Terra's earnings (million euros). Difference between projections [4] and [6]
Table 12.3. Projections of Terra's earnings (million euros). Difference between projections [7] and [9]
Table 12.4. Valuation of Terra performed by an Euroamerican bank on 7 April 2000
Table 12.5. Valuation of Terra by the sum of the parts performed by a Spanish bank on May 10, 2000
Table 12.6. Valuation of Terra performed by a Spanish bank on 10 May 2000
Table 12.7. Summary of the valuation of Terra performed by a Spanish bank on 10 May 2000
Table 12.8. Valuation of Terra performed by an American broker on 20 June 2000
Table 12.9. Verification of the valuation of Terra performed by an American broker on 20 June 2000
Table 12.10. Companies comparable to Terra according to a Spanish bank in September 1999
Table 12.11. Valuation of Terra performed by a Spanish bank in September 1999
Table 12.12. Terra. Implicit capitalization in November 2010 and equity cash flow in 2010 required to justify this capitalization
Table 12.13. The world's 20 largest companies in terms of market capitalization in November 2000

Chapter 13. Proposed measures of shareholder value creation: EVA™, Economic Profit, MVA, CVA, CFROI and TSR
Table 13.1. EVA, EP and MVA of a company without debt. IRR of investment = Required return to equity (Ke) = 10%
Table 13.2. Cash value added of a company without debt. IRR of the investment = Required return to equity = 10%
Table 13.3. EVA, EP and MVA. Company with constant debt level. IRR of investment = 10%.
Table 13.4. Cash value added. Firm with constant debt (4 billion) . IRR of the investment = 10%.

Chapter 14. EVA, Economic profit and Cash value added do not measure shareholder value creation
Table 14.1. Summary of the correlations between the increase in the MVA each year and each year's EVA, NOPAT and WACC for 582 American companies.
Table 14.2. Correlations between the increase in the MVA each year and each year's EVA, NOPAT and WACC for the largest American companies.
Table 14.3. The world's 100 most profitable companies for their shareholders during the period 1994-1998.
Table 14.4. Number of companies that obtained the highest correlation between the parameters indicated. 28 Spanish companies. 1992-1998.
Table 14.5. Mean correlation between the parameters indicated. 28 Spanish companies. 1992-98
Table 14.6. Difference between 40 companies that used EVA, economic profit or CVA as executive remuneration parameters and those that did not

Chapter 15. The RJR Nabisco valuation
Table 15.1. Income statements and stock market data for RJR Nabisco for the years prior to the acquisition.
Table 15.2. Balance sheets of RJR Nabisco for the years prior to the acquisition.
Table 15.3. Pre-bid strategy. Balance sheets, income statements and cash flows.
Table 15.4. Pre-bid strategy. Valuation.
Table 15.5. The Management Group's strategy. Balance sheet
Table 15.6. The Management Group's strategy. Income statements and cash flows.
Table 15.7. Valuation of the Management Group's strategy.
Table 15.8. Valuation of Management Group's strategy with WACC and WACCBT
Table 15.9. KKR's strategy. Balance sheet.
Table 15.10. KKR's strategy. Income statements and cash flows.
Table 15.11. Valuation of KKR's strategy.
Table 15.12. Valuation of KKR's strategy with WACC and WACCBT
Table 15.13. Comparison of the two bids' FCF with the pre-bid FCF.
Table 15.14. Comparison of the two bid's CCF with the pre-bid FCF
Table 15.15. Summary of the valuations.
Table 15.16. Consultant teams for KKR, the Management Group and the Special Committee.
Table 15.17. Final bids tendered by KKR and the Management Group.
Table 15.18. Valuation of the Management Group's strategy grouping the financial instruments as debt or equity.
Table 15.19. Valuation of KKR's strategy grouping the financial instruments as debt or equity.

Chapter 16. Valuation and value creation in Internet-related companies
Table 16.1. Periods of value creation and destruction for a number of companies
Table 16.2. B2B companies. Evolution during 2000
Table 16.3. Amazon. Income statements and balance sheets
Table 16.4. Options held by employees and managers. 31 December 1999
Table 16.5. Forecasts made by an analyst for Amazon in December 1999
Table 16.6. Forecasts of Damodaran for Amazon
Table 16.7. Copeland's forecasts and valuation for Amazon
Table 16.8. Basic scenario for the valuation of Amazon
Table 16.9. Value of Amazon's equity. Sensitivity analysis
Table 16.10. Difference between this valuation and Copeland's
Table 16.11. Difference between Damodaran's projections and this valuation
Table 16.12. ConSors. Historic data and forecasts
Table 16.13. Key indicators of the main online brokers in 1998
Table 16.14. North American brokers. Main parameters
Table 16.15. Microsoft. Evolution since 1975.
Table 16.16. AOL
Table 16.17. Barners & Noble

Chapter 17. Discounted cash flow valuation methods: perpetuities, constant growth and general case
Table 17.1. Example of the valuation of six companies without growth
Table 17.2. Annual cash flows (million euros), discount rates and value of the company without growth
Table 17.3. Balance sheet, income statement and cash flows of a company that grows at 5%. The net fixed assets remain constant.
Table 17.4. Valuation of a company that grows at 5%. The net fixed assets are constant.
Table 17.5. Cash flows in year 1, discount rates and value of the company with an annual growth
Table 17.6. Forecast balance sheets for Font, Inc.
Table 17.7. Forecast income statements and cash flows for Font, Inc.
Table 17.8. Valuation of Font, Inc.
Table 17.9. Sensitivity analysis of the value of the equity
Table 17.10. Valuation of Font, Inc. assuming that D¹N
Table 17.11. Impact of the use of the simplified formulae on the valuation of Font Inc.

Chapter 18. Optimal Capital Structure: Problems with the Harvard and Damodaran Approaches
Table 18.1. Optimal structure according to a Harvard Business School technical note
Table 18.2. Value of the cash flows generated by the company and required return to assets
Table 18.3. Cost of leverage
Table 18.4. Incremental cost of debt
Table 18.5. Required return to incremental equity cash flow
Table 18.6. Difference between Ke and Kd
Table 18.7. Price per share for each step of the debt level
Table 18.8. Probability of bankruptcy of debt and equity
Table 18.9. Valuation without leverage costs
Table 18.10. Valuation with leverage costs
Table 18.11. Optimal capital structure for Boeing
Table 18.12. Optimal capital structure for Boeing. Capital structure, income statements and cash flows according to Damodaran
Table 18.13. Optimal capital structure for Boeing. Valuation according to Damodaran.

Chapter 19. Financial literature about discounted cash flow valuation
Table 19.1. Competing theories for calculating the value of the tax shields
Table 19.2. Perpetuity. Discounted value of the tax shield (DVTS) according to the 8 theories.
Table 19.3. Problems of the candidate formulas to calculate the DVTS in a M&M world with constant growth
Table 19.4. Example of a company valuation.
Table 19.5. WACC at different growth rates g.
Table 19.6. DVTS at different growth rates g.
Table 19.7. Ke at different growth rates g.
Table 19.8. Present value of the tax shield (DVTS) at different debt ratios
Table 19.9. Required return to equity (Ke) at different debt ratios
Table 19.10. Example of a company valuation.

Chapter 20. Application of the different theories to RJR Nabisco
Table 20.1. Pre-bid strategy. Valuation according to MM.
Table 20.2. Valuation of the management group's strategy according to MM.
Table 20.3. Valuation of KKR's strategy according to MM.
Table 20.4. Valuation of the pre-bid strategy according to Damodaran (1994)
Table 20.5. Valuation of the management group's strategy according to Damodaran (1994)
Table 20.6. Valuation of KKR's strategy according to Damodaran (1994)
Table 20.7. Valuation of the pre-bid strategy according to Ruback
Table 20.8. Valuation of the management group's strategy according to Ruback
Table 20.9. Valuation of KKR's strategy according to Ruback
Table 20.10. Valuation of the pre-bid strategy according to Myers
Table 20.11. Valuation of the management group's strategy according to Myers
Table 20.12. Valuation of KKR's strategy according to Myers
Table 20.13. Valuations of the pre-bid strategy.
Table 20.14. Valuations of the management group's strategy
Table 20.15. Valuations of KKR's strategy

Chapter 21. Eight methods and seven theories for valuing companies by cash flow discounting
Table 21.1. Balance sheet and income statement forecasts for Delta Inc.
Table 21.2. Cash flow forecasts for Delta Inc.
Table 21.3. Valuation of Delta Inc.
Table 21.4. Valuation of Delta Inc. according to Myers (1974)
Table 21.5. Valuation of Delta Inc. according to Harris and Pringle (1985), and Ruback (1995)
Table 21.6. Valuation of Delta Inc, according to Damodaran (1994)
Table 21.7. Valuation of Delta Inc. according to the practitioners method
Table 21.8. Valuation of Delta Inc. according to Miles and Ezzell (1980)
Table 21.9. Valuation of Delta Inc. according to Modigliani and Miller (1963)
Table 21.10. Valuation of Delta Inc. according to the seven theories

Chapter 22. Real options. Valuing flexibility: beyond discounted cash flow valuation
Table 22.1. Concession for the exploitation of an oil well for one year.
Table 22.2. Value of the call and analysis of how the call's value is affected by changes in its parameters
Table 22.3. Value of the option to extract with differing expectations for s and rK
Table 22.4. Parameters that influence the value of a financial option and of a real option.
Table 22.5. Value of Home Depot's option to expand with different expectations for s and volatility
Table 22.6. Valuation of Yahoo performed by a renowned international consulting firm

Chapter 23. Valuation of brands and intangibles
Table 23.1. The 80 most valuable brands in 2000, according to Interbrand
Table 23.2. Value of the brands of soccer and formula 1 teams, according to FutureBrand
Table 23.3. Valuations of the Kellogg and Coca-Cola brands according to Damodaran
Table 23.4. Sensitivity of the value of the Kellogg brand to the NOPAT/Sales ratio and growth of the generic product
Table 23.5. Growth of Coca-Cola, Kellogg and Pepsico
Table 23.6. An example of the calculation of the brand's differential earnings according to Interbrand
Table 23.7. Examples of brand strength calculations according to Interbrand
Table 23.8. The most valuable brands in 1996 according to Financial World
Table 23.9. Brand valuation according to Houlihan Valuation Advisors
Table 23.10. Brand value and main factors affecting it (brand value drivers)
Table 23.11. American Skandia. Report on the company's potential for converting intellectual capital into financial capital