Table of Contents
Investment Appraisal.........................................................................................................................4
Discounting....................................................................................................................................4
1) NPV ........................................................................................................................................4
Foreign Investment Appraisal .....................................................................................................5
2) Internal Rate of Return (IRR) ..................................................................................................6
Modified Internal rate of Return ..................................................................................................7
3) Payback Period ......................................................................................................................7
4) Accounting Rate of Return (ARR) ...........................................................................................7
Costing Methods ...............................................................................................................................8
Budgeted profit to actual profit reconciliation .....................................................................................8
Breakeven analysis ...........................................................................................................................8
Valuations .........................................................................................................................................9
P/E ratio method (income-based) ..................................................................................................9
Discounted dividends method (income-based) ............................................................................ 10
Discounted earnings method (income-based).............................................................................. 11
Discounted cash flows ................................................................................................................. 11
Free Cash Flow method (cash-based) ..................................................................................... 11
Free Cash Flow to Equity method (cash-based)....................................................................... 12
Adjusted Present Value approach (cash-based) ...................................................................... 12
Shareholder value analysis (value-based)................................................................................ 12
Economic value added method (value-based).......................................................................... 13
Market value added method (value based) .............................................................................. 13
Net assets method....................................................................................................................... 14
Brand Valuation ........................................................................................................................... 14
Debt Valuation ............................................................................................................................. 15
Additional info that may be required:............................................................................................ 16
Cost of Debt .................................................................................................................................... 17
Irredeemable debt ....................................................................................................................... 17
Redeemable debt / Bonds ........................................................................................................... 17
Cost of preference shares ........................................................................................................... 17
Cost of convertible debt ............................................................................................................... 17
Cost of Equity.................................................................................................................................. 18
Dividend valuation model............................................................................................................. 18
The Gordon Growth Model .......................................................................................................... 18
CAPM .......................................................................................................................................... 18
1
,WACC ............................................................................................................................................. 19
Debt Vs Equity ................................................................................................................................ 20
DATA ANALYSIS ............................................................................................................................ 20
Strategic Data Analysis................................................................................................................ 20
Financial Data Analysis ............................................................................................................... 21
Performance ratios ................................................................................................................... 21
Liquidity ratios .......................................................................................................................... 22
Solvency ratios......................................................................................................................... 22
Efficiency ratios ........................................................................................................................ 22
Investor ratios .......................................................................................................................... 23
Operational Data Analysis ........................................................................................................... 24
Big Data ...................................................................................................................................... 24
Cyber security incident ................................................................................................................ 25
Artificial Intelligence: .................................................................................................................... 25
Machine learning: ........................................................................................................................ 25
Additional Information .................................................................................................................. 25
Strategic analysis, choice, implementation ...................................................................................... 26
Strategic Analysis (SWOT Analysis) ............................................................................................ 26
External analysis ...................................................................................................................... 26
Internal analysis ....................................................................................................................... 26
Stakeholder Analysis ................................................................................................................... 26
Strategic choice!!! ........................................................................................................................ 26
Competitive positioning ............................................................................................................ 26
Directions for growth ................................................................................................................ 26
Implementation ............................................................................................................................ 28
Types of structure .................................................................................................................... 28
Balanced scorecard ................................................................................................................. 28
Risk management .................................................................................................................... 28
Supply chain management ....................................................................................................... 28
Marketing Strategy ................................................................................................................... 30
Brand Strategy ......................................................................................................................... 31
Information strategy ................................................................................................................. 31
Performance measurement and management ......................................................................... 31
Digital strategy ......................................................................................................................... 32
Change Management............................................................................................................... 32
International trade / Expansion strategies ....................................................................................... 33
Dividend management ................................................................................................................. 41
2
, Remittance restrictions ................................................................................................................ 42
Transfer pricing for multinationals ................................................................................................ 42
Dividend policy ................................................................................................................................ 43
Financing ........................................................................................................................................ 45
Share buy-backs.......................................................................................................................... 46
Corporate bond risks ................................................................................................................... 46
Financing options for SMEs ............................................................................................................ 47
Financial distress ............................................................................................................................ 48
Demergers and Disposals ............................................................................................................... 48
Financial Risk Management ............................................................................................................ 51
Interest Rate Risk ........................................................................................................................ 54
Foreign exchange rate risk .......................................................................................................... 56
Parity Theories ......................................................................................................................... 57
Caps, Floors, Collars ................................................................................................................... 59
Treasury and working capital management ..................................................................................... 61
Multilateral Netting Off ................................................................................................................. 62
Working capital financing ............................................................................................................. 63
Due Diligence.................................................................................................................................. 64
Assurance on business plans and forecasts.................................................................................... 69
Assurance of service providers ....................................................................................................... 70
Social and environmental audits...................................................................................................... 71
Agreed upon Procedures ................................................................................................................ 73
Corporate Governance.................................................................................................................... 74
Executive remuneration .................................................................................................................. 76
Board Structures ............................................................................................................................. 78
ETHICS........................................................................................................................................... 79
3
, Investment Appraisal
Discounting
1) Single cash flow:
1
DF = (1+r)n or use tables
2) Annuity cash flow:
1 1
AF = r (1 − (1+r)n ) or use tables
1+𝑟
Note: if the annuity is growing at a constant rate of g each year, then r becomes (1+𝑔) − 1 or
as an approximation r-g.
3) Perpetuity cash flow:
1
PF = CF x
r
1
PF (with growth) = CF(t1) x
r−g
4) Delayed perpetuity:
CFt x PF x DFt-1
5) Non-annual discount rates:
(1 + 𝑅) = (1 + 𝑟)𝑛
Where R = non-annual rate, r = annual rate, n= no. of time periods
1) NPV
Example Pro Forma
T0 T1
Operating CFs:
Sales X
Costs (X)
Net operating flows X / (X)
Tax @standard rate (X) / X
Asset flows
Purchase (X)
If money rate is
Disposal X
provided, go on. If real
*Capital allowances (cost*%*tax % or depn* tax %) X X rate is provided, it
Working Capital must be increased to
reflect inflation using
Incremental investment (-ve changes in WC (X) X
summing up to 0 at the end) (1+m) = (1+r)(1+g.
Net flows (X) X infl)
4
Investment Appraisal.........................................................................................................................4
Discounting....................................................................................................................................4
1) NPV ........................................................................................................................................4
Foreign Investment Appraisal .....................................................................................................5
2) Internal Rate of Return (IRR) ..................................................................................................6
Modified Internal rate of Return ..................................................................................................7
3) Payback Period ......................................................................................................................7
4) Accounting Rate of Return (ARR) ...........................................................................................7
Costing Methods ...............................................................................................................................8
Budgeted profit to actual profit reconciliation .....................................................................................8
Breakeven analysis ...........................................................................................................................8
Valuations .........................................................................................................................................9
P/E ratio method (income-based) ..................................................................................................9
Discounted dividends method (income-based) ............................................................................ 10
Discounted earnings method (income-based).............................................................................. 11
Discounted cash flows ................................................................................................................. 11
Free Cash Flow method (cash-based) ..................................................................................... 11
Free Cash Flow to Equity method (cash-based)....................................................................... 12
Adjusted Present Value approach (cash-based) ...................................................................... 12
Shareholder value analysis (value-based)................................................................................ 12
Economic value added method (value-based).......................................................................... 13
Market value added method (value based) .............................................................................. 13
Net assets method....................................................................................................................... 14
Brand Valuation ........................................................................................................................... 14
Debt Valuation ............................................................................................................................. 15
Additional info that may be required:............................................................................................ 16
Cost of Debt .................................................................................................................................... 17
Irredeemable debt ....................................................................................................................... 17
Redeemable debt / Bonds ........................................................................................................... 17
Cost of preference shares ........................................................................................................... 17
Cost of convertible debt ............................................................................................................... 17
Cost of Equity.................................................................................................................................. 18
Dividend valuation model............................................................................................................. 18
The Gordon Growth Model .......................................................................................................... 18
CAPM .......................................................................................................................................... 18
1
,WACC ............................................................................................................................................. 19
Debt Vs Equity ................................................................................................................................ 20
DATA ANALYSIS ............................................................................................................................ 20
Strategic Data Analysis................................................................................................................ 20
Financial Data Analysis ............................................................................................................... 21
Performance ratios ................................................................................................................... 21
Liquidity ratios .......................................................................................................................... 22
Solvency ratios......................................................................................................................... 22
Efficiency ratios ........................................................................................................................ 22
Investor ratios .......................................................................................................................... 23
Operational Data Analysis ........................................................................................................... 24
Big Data ...................................................................................................................................... 24
Cyber security incident ................................................................................................................ 25
Artificial Intelligence: .................................................................................................................... 25
Machine learning: ........................................................................................................................ 25
Additional Information .................................................................................................................. 25
Strategic analysis, choice, implementation ...................................................................................... 26
Strategic Analysis (SWOT Analysis) ............................................................................................ 26
External analysis ...................................................................................................................... 26
Internal analysis ....................................................................................................................... 26
Stakeholder Analysis ................................................................................................................... 26
Strategic choice!!! ........................................................................................................................ 26
Competitive positioning ............................................................................................................ 26
Directions for growth ................................................................................................................ 26
Implementation ............................................................................................................................ 28
Types of structure .................................................................................................................... 28
Balanced scorecard ................................................................................................................. 28
Risk management .................................................................................................................... 28
Supply chain management ....................................................................................................... 28
Marketing Strategy ................................................................................................................... 30
Brand Strategy ......................................................................................................................... 31
Information strategy ................................................................................................................. 31
Performance measurement and management ......................................................................... 31
Digital strategy ......................................................................................................................... 32
Change Management............................................................................................................... 32
International trade / Expansion strategies ....................................................................................... 33
Dividend management ................................................................................................................. 41
2
, Remittance restrictions ................................................................................................................ 42
Transfer pricing for multinationals ................................................................................................ 42
Dividend policy ................................................................................................................................ 43
Financing ........................................................................................................................................ 45
Share buy-backs.......................................................................................................................... 46
Corporate bond risks ................................................................................................................... 46
Financing options for SMEs ............................................................................................................ 47
Financial distress ............................................................................................................................ 48
Demergers and Disposals ............................................................................................................... 48
Financial Risk Management ............................................................................................................ 51
Interest Rate Risk ........................................................................................................................ 54
Foreign exchange rate risk .......................................................................................................... 56
Parity Theories ......................................................................................................................... 57
Caps, Floors, Collars ................................................................................................................... 59
Treasury and working capital management ..................................................................................... 61
Multilateral Netting Off ................................................................................................................. 62
Working capital financing ............................................................................................................. 63
Due Diligence.................................................................................................................................. 64
Assurance on business plans and forecasts.................................................................................... 69
Assurance of service providers ....................................................................................................... 70
Social and environmental audits...................................................................................................... 71
Agreed upon Procedures ................................................................................................................ 73
Corporate Governance.................................................................................................................... 74
Executive remuneration .................................................................................................................. 76
Board Structures ............................................................................................................................. 78
ETHICS........................................................................................................................................... 79
3
, Investment Appraisal
Discounting
1) Single cash flow:
1
DF = (1+r)n or use tables
2) Annuity cash flow:
1 1
AF = r (1 − (1+r)n ) or use tables
1+𝑟
Note: if the annuity is growing at a constant rate of g each year, then r becomes (1+𝑔) − 1 or
as an approximation r-g.
3) Perpetuity cash flow:
1
PF = CF x
r
1
PF (with growth) = CF(t1) x
r−g
4) Delayed perpetuity:
CFt x PF x DFt-1
5) Non-annual discount rates:
(1 + 𝑅) = (1 + 𝑟)𝑛
Where R = non-annual rate, r = annual rate, n= no. of time periods
1) NPV
Example Pro Forma
T0 T1
Operating CFs:
Sales X
Costs (X)
Net operating flows X / (X)
Tax @standard rate (X) / X
Asset flows
Purchase (X)
If money rate is
Disposal X
provided, go on. If real
*Capital allowances (cost*%*tax % or depn* tax %) X X rate is provided, it
Working Capital must be increased to
reflect inflation using
Incremental investment (-ve changes in WC (X) X
summing up to 0 at the end) (1+m) = (1+r)(1+g.
Net flows (X) X infl)
4
