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Corporate Finance and Valuation

15 chapters

1. Enterprise Value vs Equity Value

[Verse 1]
When you're valuing a company, there's two ways to see
The worth that lies within its operations and equity
Enterprise value looks at all the capital combined
While equity value shows what shareholders can find

[Chorus]
E V equals market cap plus debt minus the cash
That's the total business value, calculated fast
Equity value is what owners truly hold
Market cap times shares outstanding, story told
Two different lenses, two different views
Pick the right one when you analyze and choose

[Verse 2]
Enterprise value treats the firm as debt-free entity
It's what you'd pay to buy the whole company
Add up market cap, then debt you must include
Subtract the cash and equivalents, that's the prelude

[Chorus]
E V equals market cap plus debt minus the cash
That's the total business value, calculated fast
Equity value is what owners truly hold
Market cap times shares outstanding, story told
Two different lenses, two different views
Pick the right one when you analyze and choose

[Bridge]
For comparing companies with different debt levels
Enterprise value keeps you steady, never disheveled
When capital structure varies across the field
E V to E B I T D A gives you comparable yield
But if you're buying shares, not the whole company
Equity value is your key to profitability

[Verse 3]
Use enterprise when you're doing multiples comparison
Different leverage shouldn't cloud your analysis foundation
Use equity value for per share calculations true
Earnings per share and book value coming through

[Chorus]
E V equals market cap plus debt minus the cash
That's the total business value, calculated fast
Equity value is what owners truly hold
Market cap times shares outstanding, story told
Two different lenses, two different views
Pick the right one when you analyze and choose

[Outro]
Enterprise or equity, now you know the way
Choose your valuation method for the task today
Both have their place in the analyst's toolbox
Understanding both will help your knowledge unlock

2. Capital Investment Decisions

[Verse 1]
When a project comes your way, need to make the right decision
Calculate the net present value, that's your starting vision
Take the cash flows that will come, discount them to today
Subtract initial investment, see if profits pay

[Chorus]
NPV and IRR, payback time to see
Profitability index, ratios hold the key
Incremental cash flows matter, sunk costs throw away
Real options give you choices, audit at the end of day

[Verse 2]
IRR's the magic rate where NPV equals zero
If it beats your required return, then you've found a hero
Payback period tells you when you'll break even clean
Add discounting to the mix, get a clearer scene

[Chorus]
NPV and IRR, payback time to see
Profitability index, ratios hold the key
Incremental cash flows matter, sunk costs throw away
Real options give you choices, audit at the end of day

[Verse 3]
Mutually exclusive means you pick just one
Capital rationing limits funds, can't do all the fun
Look at profitability index when the cash is tight
Rank your projects high to low, choose the ones that shine bright

[Bridge]
Opportunity costs count, what you're giving up
Externalities affect others, fill that data cup
Cannibalization steals sales from your other lines
Include them in your model, read between the lines

[Verse 4]
Real options give you power, flexibility to choose
Delay until conditions change, expand if you can't lose
Abandon when things go wrong, cut losses while you can
Post-audit checks your work, learn to make a better plan

[Chorus]
NPV and IRR, payback time to see
Profitability index, ratios hold the key
Incremental cash flows matter, sunk costs throw away
Real options give you choices, audit at the end of day

[Outro]
Capital decisions made with care and calculation
Building wealth through smart investments, growing every nation

3. Asset-Based Valuation Methods

[Verse 1]
When markets fail to tell the tale of what a company is worth
Look beyond the trading price and dig into the earth
Of balance sheets and concrete things, the assets that they hold
Three methods stand to guide your hand when stories must be told

[Chorus]
Book value, liquidation, replacement cost in line
B-L-R, the asset way to value and define
When factories and inventory matter more than hype
Asset-based valuation gets the numbers right

[Verse 2]
Book value starts with balance sheet, the carrying amount shown
Take assets minus liabilities, the equity you own
But historical cost accounting means the numbers might be stale
When inflation's had its impact, book value tells a pale tale

[Chorus]
Book value, liquidation, replacement cost in line
B-L-R, the asset way to value and define
When factories and inventory matter more than hype
Asset-based valuation gets the numbers right

[Verse 3]
Liquidation value asks the question, what if we must sell?
In distressed or urgent situations, assets don't fare well
Take the fire sale prices when you need cash right away
Subtract the costs of selling and the debts you have to pay

[Bridge]
Asset-heavy businesses need asset-focused eyes
Manufacturing companies with plants that touch the skies
Real estate and resources where tangibles hold sway
These methods shine the brightest light to show the value way

[Verse 4]
Replacement cost will tell you what it takes to start anew
To build the same capacity, what would you have to do?
Current prices, current tech, to recreate today
The infrastructure and the assets that make the business pay

[Chorus]
Book value, liquidation, replacement cost in line
B-L-R, the asset way to value and define
When factories and inventory matter more than hype
Asset-based valuation gets the numbers right

[Outro]
Three approaches, one clear goal, to value what is real
When assets drive the business model, this is your ideal
B-L-R will guide you through the asset valuation game
Book, liquidation, replacement cost, remember every name

4. Capital Structure

[Verse 1]
Companies need money to grow and thrive
Debt or equity keeps the dream alive
Should we borrow cash or sell some shares?
Capital structure shows who really cares
Modigliani Miller had a plan
Said firm value stays the same, they ran
The numbers proving leverage doesn't matter
When perfect markets don't let assumptions shatter

[Chorus]
Mix and match your debt and equity
MM says it's all the same, you see
But taxes change the game we play
Interest shields save money every day
Trade-off theory weighs the cost
Pecking order shows what's gained and lost
Capital structure tells the story
Of how we fund our path to glory

[Verse 2]
But wait, there's more to this tale we tell
When taxes enter, debt works well
Interest payments reduce the bill
Tax shields give your profits a thrill
Financial distress brings a cost
When debt gets high, value gets lost
Bankruptcy whispers in the night
Trade-off theory makes it right

[Chorus]
Mix and match your debt and equity
MM says it's all the same, you see
But taxes change the game we play
Interest shields save money every day
Trade-off theory weighs the cost
Pecking order shows what's gained and lost
Capital structure tells the story
Of how we fund our path to glory

[Bridge]
Pecking order says we choose
Internal funds we'll never lose
Then debt comes next in line to use
Equity's the last we'll choose
Agency costs create a fight
Debt holders want their money tight
Equity holders take more risk
Management caught between the mix

[Verse 3]
Target structure guides the way
Optimal mix for every day
Industry norms and business size
Tax rates and growth before our eyes
Debt covenants keep managers in check
Financial ratios they must respect
Practical factors rule the game
Capital structure's not the same

[Chorus]
Mix and match your debt and equity
MM says it's all the same, you see
But taxes change the game we play
Interest shields save money every day
Trade-off theory weighs the cost
Pecking order shows what's gained and lost
Capital structure tells the story
Of how we fund our path to glory

[Outro]
From perfect markets to the real world stage
Capital structure sets the page
For how companies choose to grow
Now you've learned all you need to know

5. DCF Valuation: Cash Flow Projections

[Verse 1]
Start with revenue, the top line stream
Historical patterns help us dream
Growth rates, market size, and pricing trends
This is where our forecast begins
Break it down by segment, product line
Quarter by quarter, we define
The future sales that drive our plan
Build it up, understand

[Chorus]
Project the cash, Free Cash Flow
Revenue up, expenses grow
Working capital ties it down
EBITDA spinning round
Forecast Forward, Future Free
Cash Flow Certainty
DCF dreams start with the stream
Project the cash, make it clean

[Verse 2]
Cost of goods, the direct expense
Variable costs that make us tense
As sales increase, these costs will climb
Model the relationship through time
Operating expenses, fixed and proud
SG&A speaking loud
Depreciation, non-cash friend
Subtract it now, add back again

[Chorus]
Project the cash, Free Cash Flow
Revenue up, expenses grow
Working capital ties it down
EBITDA spinning round
Forecast Forward, Future Free
Cash Flow Certainty
DCF dreams start with the stream
Project the cash, make it clean

[Bridge]
Working capital's the trap
Accounts receivable gap
Inventory sitting tight
Payables making it right
Current assets minus current debt
Cash conversion cycle set
When business grows, cash gets tight
Working capital takes flight

[Verse 3]
EBIT calculated clean
Tax rate applied to what we've seen
Add back depreciation's ghost
Capital expenditures cost
Working capital change each year
Free cash flow becomes clear
This is the foundation strong
For DCF valuation song

[Chorus]
Project the cash, Free Cash Flow
Revenue up, expenses grow
Working capital ties it down
EBITDA spinning round
Forecast Forward, Future Free
Cash Flow Certainty
DCF dreams start with the stream
Project the cash, make it clean

[Outro]
Five to ten years we project ahead
Terminal value when growth is dead
Cash flows built with careful thought
DCF foundation's what we've got

6. Cost of Capital

[Verse 1]
When companies need funding for their dreams to come alive
They blend debt and equity to help their business thrive
The weighted average tells us what this mixture really costs
WACC shows the hurdle rate, without it we'd be lost

[Chorus]
Cost of capital, capital, shows us what we pay
Debt times one minus tax rate, that's the cheaper way
Preferred stock dividend over market price so clean
Cost of equity's the hardest, three methods to be seen
WACC, WACC, weight them all together
Guide our investment choices, now and forever

[Verse 2]
CAPM starts with risk-free rate, then adds the market's call
Beta times the risk premium, the fairest price of all
Dividend discount model grows those payments through the years
Bond yield plus a premium when comparison appears

[Chorus]
Cost of capital, capital, shows us what we pay
Debt times one minus tax rate, that's the cheaper way
Preferred stock dividend over market price so clean
Cost of equity's the hardest, three methods to be seen
WACC, WACC, weight them all together
Guide our investment choices, now and forever

[Verse 3]
Beta measures systematic risk through regression's line
Pure-play method finds a match when data's hard to find
Lever up or unlever down to match the debt you hold
Country risk for emerging markets, premiums unfold

[Bridge]
Marginal cost rises as we need more cash to spend
Flotation costs reduce proceeds that new issues send
Each component weighted by its portion of the whole
Cost of capital guides us toward our financial goal

[Chorus]
Cost of capital, capital, shows us what we pay
Debt times one minus tax rate, that's the cheaper way
Preferred stock dividend over market price so clean
Cost of equity's the hardest, three methods to be seen
WACC, WACC, weight them all together
Guide our investment choices, now and forever

[Outro]
From debt to equity, weight them carefully
WACC will show the way to profitability

7. DCF Valuation: Discount Rates and Terminal Value

[Verse 1]
When you're building out a DCF model today
Need to find the rate to discount cash away
WACC's the weighted average cost we seek
Debt and equity combined to make complete
Take the cost of debt times one minus tax rate
Add equity cost weighted by their stake
Market values matter not the book amount
This becomes your universal discount

[Chorus]
WACC brings future cash to present day
Terminal value shows the long-term way
Perpetuity growth or exit multiple
Both methods make your DCF more credible
Discount rate foundation, terminal calculation
Together they complete your valuation

[Verse 2]
Beta measures systematic risk exposure
Risk-free rate plus market premium closure
Cost of equity through the CAPM way
While debt cost comes from what the firm will pay
Weight each source by market capitalization
Debt to value and equity's allocation
Sum them up to get your blended rate
This discount factor seals your DCF fate

[Chorus]
WACC brings future cash to present day
Terminal value shows the long-term way
Perpetuity growth or exit multiple
Both methods make your DCF more credible
Discount rate foundation, terminal calculation
Together they complete your valuation

[Bridge]
Terminal value captures all the years
Beyond your forecast when the dust clears
Gordon growth model with perpetual flow
Or comparable multiples that traders know
Divide by WACC minus growth to find
The present value of the tail behind

[Verse 3]
Exit multiples use market comparisons
P-E ratios or EV to EBITDA bonds
Apply to final year projected metrics
To estimate the terminal value mathematics
Both approaches have their strengths and flaws
Choose the method that best fits your cause
Add to present value of forecast years
Your enterprise value then appears

[Chorus]
WACC brings future cash to present day
Terminal value shows the long-term way
Perpetuity growth or exit multiple
Both methods make your DCF more credible
Discount rate foundation, terminal calculation
Together they complete your valuation

[Outro]
From discount rate to terminal estimation
DCF completes your firm's true valuation

8. Dividends and Share Repurchases

[Verse 1]
When companies make profits, what should they do?
Keep the cash inside or share it with you?
Miller and Modigliani said it doesn't matter at all
Dividend policy won't make your stock rise or fall
But others disagree, let me tell you why
Some theories suggest your returns can fly

[Chorus]
Dividends flow, repurchases grow
Bird in the hand or let the money go
Stable payments, constant rates
Residual cash, whatever it takes
Share buybacks boost the price per share
Tax effects show investors care

[Verse 2]
Bird in the hand theory says cash today
Is worth more than promises of future pay
Tax preference argues capital gains are best
Lower tax rates put more money in your chest
Clientele effect means different folks want different things
Retirees love dividends, young investors want capital swings

[Chorus]
Dividends flow, repurchases grow
Bird in the hand or let the money go
Stable payments, constant rates
Residual cash, whatever it takes
Share buybacks boost the price per share
Tax effects show investors care

[Verse 3]
Signaling theory says dividends send a sign
When management pays out, the future looks fine
Three policies guide how companies decide
Stable dividend keeps payments by your side
Constant payout ratio means a fixed percent
Residual dividend pays what's left after investment

[Bridge]
Open market purchases happen every day
Tender offers set a price that companies pay
Dutch auction lets the market find the rate
Stock splits and stock dividends don't change your fate
Just more shares at lower price, the value stays the same
It's all about the total wealth in this financial game

[Chorus]
Dividends flow, repurchases grow
Bird in the hand or let the money go
Stable payments, constant rates
Residual cash, whatever it takes
Share buybacks boost the price per share
Tax effects show investors care

[Outro]
When shares go down but earnings stay
Your EPS will rise that day
Book value changes with each buy
These theories help explain just why

9. Trading Multiples Analysis

[Verse 1]
When you need to value a company today
Look around for peers that trade the same way
Public companies with similar size
Same industry, same market ties
Revenue growth and margins aligned
Geographic reach of the same kind

[Chorus]
P-E tells the earnings story
EV-EBITDA shows the glory
EV-Sales when profits are low
Trading multiples help you know
Compare the ratios side by side
Let the market be your guide

[Verse 2]
Price to earnings, that's your P-E
Stock price over EPS, you see
Enterprise value takes it further still
Add the debt, subtract cash until
You get the total business worth
Then divide by what it's giving birth

[Chorus]
P-E tells the earnings story
EV-EBITDA shows the glory
EV-Sales when profits are low
Trading multiples help you know
Compare the ratios side by side
Let the market be your guide

[Bridge]
EBITDA strips away the noise
Depreciation's accounting choice
Sales multiples for early stage
When earnings haven't reached their age
Book value for the asset play
Price to cash flow shows the way

[Verse 3]
Select your peers with careful thought
Business model can't be fought
Growth rates should be similar too
Capital structure, debt ratio
Remove the outliers from your set
The median's your safest bet

[Chorus]
P-E tells the earnings story
EV-EBITDA shows the glory
EV-Sales when profits are low
Trading multiples help you know
Compare the ratios side by side
Let the market be your guide

[Outro]
Market wisdom in the numbers
Public trading never slumbers
Multiply and find your range
Trading multiples help you gauge
What the market thinks it's worth
Valuation finds its birth

10. Corporate Governance and ESG

[Verse 1]
When shareholders own but managers run the show
There's a gap between what each one wants to know
Owners seek returns and long-term value growth
While managers might chase their personal goals

Bondholders lend money, they want it back secure
But shareholders prefer the risks that might endure
These agency conflicts create a daily dance
Of balancing interests and taking measured stance

[Chorus]
Corporate governance keeps the balance right
ESG factors shining bright
Board structure, compensation aligned
Stakeholder versus shareholder mind
Proxy fights when activism calls
Good governance protects us all

[Verse 2]
Independent directors on the board must sit
Separate the CEO from chairman benefits
Executive pay should match the company's success
Stock options and bonuses reduce the agency mess

When compensation ties to metrics that are clear
Long-term value creation becomes the goal each year
Performance-based rewards help align the team
With shareholder returns and the corporate dream

[Chorus]
Corporate governance keeps the balance right
ESG factors shining bright
Board structure, compensation aligned
Stakeholder versus shareholder mind
Proxy fights when activism calls
Good governance protects us all

[Bridge]
Environmental impact, social responsibility
Governance practices for sustainability
Some say stakeholders all deserve a voice
Others claim shareholders get the only choice

When activists gather votes to make their stand
Proxy battles reshape how companies are planned
ESG integration in analysis today
Shows us how these factors impact stock's display

[Verse 3]
Effective boards need diversity and skill
Independent thinking and the corporate will
Audit committees check the financial state
Risk management helps avoid a costly fate

Shareholder theory says maximize the stock
Stakeholder theory serves the entire block
Employees, customers, community too
Finding balance in what companies should do

[Chorus]
Corporate governance keeps the balance right
ESG factors shining bright
Board structure, compensation aligned
Stakeholder versus shareholder mind
Proxy fights when activism calls
Good governance protects us all

[Outro]
Agency problems need solutions every day
Good governance shows us the sustainable way
ESG metrics help analysts see
Which companies will thrive in history

11. Precedent Transaction Analysis

[Verse 1]
When you need to value what a company's worth
Look to the past deals that came before
Precedent transactions show the market's birth
Of pricing patterns we can explore
Find the targets that match your size and sector
Same industry, same financial health
Transaction multiples are your detector
Revealing how buyers measured wealth

[Chorus]
Price to earnings, price to sales
Enterprise value to EBITDA tales
Control premium lifts the price
Market conditions roll the dice
Precedent transactions guide the way
Yesterday's deals inform today
Multiples tell the story true
Of what acquirers paid on cue

[Verse 2]
Control premium adds that extra layer
When buyers want the steering wheel
Twenty to forty percent they'll pay her
For the power to make each deal
Strategic buyers pay more than financial
Synergies drive their higher bids
Market timing proves essential
Bull markets lift what sellers get

[Chorus]
Price to earnings, price to sales
Enterprise value to EBITDA tales
Control premium lifts the price
Market conditions roll the dice
Precedent transactions guide the way
Yesterday's deals inform today
Multiples tell the story true
Of what acquirers paid on cue

[Bridge]
Screen for size and industry
Time period matters too
Six months to two years history
Recent deals give better clues
Adjust for market volatility
Strip out one-time special gains
Cash versus stockability
Affects what value remains

[Verse 3]
Plot the multiples on your screen
Find the median and the range
Twenty-fifth to seventy-fifth percentile
Shows where values interchange
Weight the deals by relevance
Size and timing matter most
Recent transactions take precedence
They're your valuation host

[Final Chorus]
Price to earnings, price to sales
Enterprise value to EBITDA tales
Control premium lifts the price
Market conditions roll the dice
Precedent transactions guide the way
Yesterday's deals inform today
Apply the range to target firm
Let transaction data confirm

[Outro]
When markets move and sectors shift
Precedent analysis gives the gift
Of real world pricing, tested true
Transaction multiples guide you through

12. Mergers and Acquisitions

[Verse 1]
When companies decide to grow and expand their reach
They can merge together or one buys out each
Horizontal means they're in the same line of trade
Vertical connects the supply chain they've made
Conglomerate brings different industries as one
Three types of deals, now let's see how they're done

[Chorus]
Mergers and acquisitions, building corporate dreams
Synergies and motivations, nothing's quite what it seems
DCF and comparables help us find the price
Stock or cash, friendly or hostile, every deal rolls the dice
M and A, M and A, that's the corporate way

[Verse 2]
Why do companies want to join their corporate fate?
Operating synergies make costs deflate
Financial synergies boost the bottom line
Diversification spreads risk by design
But sometimes it's just hubris driving the CEO
Ego and pride make the biggest deals flow

[Chorus]
Mergers and acquisitions, building corporate dreams
Synergies and motivations, nothing's quite what it seems
DCF and comparables help us find the price
Stock or cash, friendly or hostile, every deal rolls the dice
M and A, M and A, that's the corporate way

[Verse 3]
To value the target, we've got methods to try
Discounted cash flow looks at future supply
Comparable companies trading in the market today
Comparable transactions show what others pay
Premium paid analysis shows what buyers will spend
Four valuation methods help deals transcend

[Bridge]
Structure matters in every deal
Stock swap or cash, what's the appeal?
Leveraged buyouts use debt to buy
Friendly handshakes or hostile fights
Tender offers and proxy rights
Poison pills and staggered boards
White knights coming with helping swords

[Verse 4]
After the deal when the papers are signed
Value creation is what we hope to find
But sometimes destruction is what we get instead
Poor integration leaves the merger dead
Post-deal performance tells the real story
Success or failure, pain or glory

[Chorus]
Mergers and acquisitions, building corporate dreams
Synergies and motivations, nothing's quite what it seems
DCF and comparables help us find the price
Stock or cash, friendly or hostile, every deal rolls the dice
M and A, M and A, that's the corporate way

[Outro]
From horizontal mergers to conglomerate plays
Understanding M and A pays
Whether friendly or hostile, the dance is the same
Welcome to the merger game

13. Industry and Company Analysis

[Verse 1]
When analyzing industries, we start with classification
GICS and ICB help us find the right location
Global Industry Classification Standard shows the way
ICB is Industry Classification Benchmark for today
Eleven sectors in GICS, then industry groups below
Sub-industries and industries help the knowledge flow

[Chorus]
Five forces, five stages, that's the way we analyze
Embryonic to decline, watch the industry life cycles rise
Suppliers and buyers, substitutes and rivalry too
Entry barriers complete Porter's framework for you
G-I-C-S and I-C-B, classify what you see
Build your peer groups carefully for equity

[Verse 2]
Industry life cycle starts when it's embryonic stage
High uncertainty and risk, companies engage
Growth stage follows next with rapid expansion
Market acceptance grows across the nation
Then comes shakeout time when competition's fierce
Weaker players exit as the market clears

[Chorus]
Five forces, five stages, that's the way we analyze
Embryonic to decline, watch the industry life cycles rise
Suppliers and buyers, substitutes and rivalry too
Entry barriers complete Porter's framework for you
G-I-C-S and I-C-B, classify what you see
Build your peer groups carefully for equity

[Verse 3]
Mature stage brings stability, growth rates slow down
Market's saturated now in every town
Decline stage is final when demand keeps falling
New technology or trends come calling
Porter's five forces help us understand the game
Competitive intensity won't ever be the same

[Bridge]
Bargaining power of suppliers can squeeze the margins tight
Buyers with more power keep the pricing right
Threat of substitutes can steal market share away
New entrants bring fresh competition every day
Rivalry among existing firms sets the competitive pace
Strategic positioning helps each company find their place

[Chorus]
Five forces, five stages, that's the way we analyze
Embryonic to decline, watch the industry life cycles rise
Suppliers and buyers, substitutes and rivalry too
Entry barriers complete Porter's framework for you
G-I-C-S and I-C-B, classify what you see
Build your peer groups carefully for equity

[Outro]
Peer groups need similar business models and size
Same geography and markets to make the best buys
Competitive strategy analysis shows how firms compete
Cost leadership or differentiation makes the picture complete
Industry analysis gives us the foundation strong
For equity valuation, we've been learning all along

14. Equity Valuation Models

[Verse 1]
When you want to find a stock's true worth today
There are models that will light the valuation way
Discounted cash flow takes future money streams
And brings them back to present value dreams

[Chorus]
DDM for dividends, FCFE for equity cash
FCFF for the whole firm, residual income's not rash
Price-to-earnings ratios, book value multiples too
Asset-based approaches when the company's in two
Valuation models help us see what stocks are really worth
From Gordon growth equations to sum-of-the-parts on Earth

[Verse 2]
Gordon growth assumes dividends increase each year
Two-stage and three-stage when growth rates aren't clear
H-model smooths the transition from high growth to low
Free cash flow to equity shows what shareholders know

[Chorus]
DDM for dividends, FCFE for equity cash
FCFF for the whole firm, residual income's not rash
Price-to-earnings ratios, book value multiples too
Asset-based approaches when the company's in two
Valuation models help us see what stocks are really worth
From Gordon growth equations to sum-of-the-parts on Earth

[Verse 3]
Residual income measures profit above the cost
Economic value added shows if value's gained or lost
Clean surplus relation keeps the books in line
Choose your model wisely based on company design

[Bridge]
Trailing P-E looks backward, forward P-E looks ahead
Price-to-book and price-to-sales keep multiples widespread
EV-EBITDA, EV-Sales for enterprise value play
Compare to similar companies to guide you on your way

[Verse 4]
When companies are holding assets or in distress
Or natural resources need an asset-based assess
Sum-of-the-parts breaks down each business unit's worth
Adjusted book value brings fair market to the Earth

[Chorus]
DDM for dividends, FCFE for equity cash
FCFF for the whole firm, residual income's not rash
Price-to-earnings ratios, book value multiples too
Asset-based approaches when the company's in two
Valuation models help us see what stocks are really worth
From Gordon growth equations to sum-of-the-parts on Earth

[Outro]
Choose your model carefully, let company traits decide
With these valuation tools, you'll value stocks with pride

15. Private Equity Valuation

[Verse 1]
General Partners lead the fund while Limited Partners pay
GPs make the investment calls day by day
Management fees of two percent keep the lights on bright
While twenty percent carried interest rewards when deals go right
The fund structure's clear and simple once you know the way
GPs invest the expertise, LPs provide the pay

[Chorus]
Pre-money valuation before the cash flows in
Post-money after funding, that's where returns begin
Comparables and DCF help set the price today
J-curve dips then rises in the private equity way
Exit through IPO, secondary sale so clean
Recapitalization or write-off completes the scene

[Verse 2]
Before the money hits the table, pre-money sets the stage
Company's worth without new funding, written on the page
After investment dollars land, post-money tells the tale
Total value of the company when funding doesn't fail
Ownership percentage calculated from this simple math
Pre-money plus investment equals post-money path

[Chorus]
Pre-money valuation before the cash flows in
Post-money after funding, that's where returns begin
Comparables and DCF help set the price today
J-curve dips then rises in the private equity way
Exit through IPO, secondary sale so clean
Recapitalization or write-off completes the scene

[Bridge]
J-curve shows the pattern that every fund will face
Early years bring losses before gains take their place
Management fees and deal costs pull returns down low
But successful exits later help the profits grow

[Verse 3]
Comparable company method looks at market peers
Public trading multiples guide the pricing gears
Discounted cash flow projects future money streams
Present value calculations fulfill the exit dreams
Multiple ways to value but the goal remains the same
Price it right today to win tomorrow's game

[Chorus]
Pre-money valuation before the cash flows in
Post-money after funding, that's where returns begin
Comparables and DCF help set the price today
J-curve dips then rises in the private equity way
Exit through IPO, secondary sale so clean
Recapitalization or write-off completes the scene

[Outro]
From GP to LP, from entry to exit door
Private equity valuation, now you know the score

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Corporate Finance and Valuation | 93