FINM3005 Corporate Valuation
FINM6005 Applied Valuation
Semester 1, 2024
Assignment Guidelines
The assignment is to be undertaken in groups of 5 – 6 students. All students must sign up
for an assignment group at Wattle by Wednesday Week 3. Signing up for assignment
groups is not restricted by tutorial enrolment. Any individuals not in a group and small
groups of less than 5 students by this time will be randomly allocated to a group by Friday
Week 3. All students within a group will be awarded the same assignment grade.
Teams need to submit an assignment involving analysis of the listed company which will
be discussed in lectures and workshops. This note sets down the objectives for the
assignment, lists what needs to be submitted, and provides some direction on how to
approach the particular phase of analysis. The guidelines can be considered ‘soft’, in the
sense that teams have discretion on how they approach each task. Also, there may be
other aspects not included on the list that should be considered. The overall aim is to
produce analysis that is suitable given the stated objective. Teams should think about
what is required for an informed judgement on the company, rather than just use the
guidelines as a checklist to follow.
Assignment Summary
Due Date 11:59pm, 12
th May
Weighting (%) 35% (or 40% if quiz not redeemed)
Objectives • Build and submit company model, including forecasts
• Generate a DCF valuation with all assumptions and material information
substantiated
• Value the company based on selected multiple-based and asset-based
methods
• Submit worksheets where appropriate
• Write-up the company outlook and your analysis in a research note
format
Length
(excluding title page,
contents and references)
Recommended: 4-6 pages of body, plus 2 pages of appendices
Submission Details 1. Online submission at Wattle. No hard copy or no email submission is
accepted.
2. Upload your files in Excel, Word or PDF format, max size of uploads 2GB,
max 5 files per group. One submission from each group is required.
3. All files submitted to be named as follows:
FINM3005 Assignment (number) - Group (number) - (description)
FINM3006 Assignment (number) - Group (number) - (description)
Example 1: FINM3005 Assignment - Group 01 - Company Model.xls
Example 2: FINM3005 Assignment - Group 01 - Final
Report.docx
4. The usual assignment cover is not required for online submissions.
5. You must click “Submit” button to confirm the files are final for grading.
Note: Assignments will not be considered submitted until they comply
with the above requirements. Failure to do so may
incur late penalties.
Extensions & Late
Penalties
No extensions, refer to Course Outline for late penalties
Assignment – Company Model and DCF Valuation; Multiple- and/or Asset-
based Valuation; Research Note
Objective: Produce a company model, including forecasts; generate a DCF valuation; round out
the valuation with a range of appropriate multiple-based or asset-based valuations; and write-up
your analysis in a research note format.
What You Need To Submit
• Your company model, including:
• integrated financial accounts
• company forecasts
• DCF valuation
• summary tables and charts
• explanatory notes incorporated within the model as appropriate
• Scenario analysis
• Additional worksheets that detail all the multiple-based and/or asset-based analysis
• A research note summarizing your valuation analysis
Guidelines
The first part of the assignment establishes the foundation. It involves building a company
model; making forecasts; generating a DCF valuation; and setting out the assumptions for
analysis.
The second part of the assignment completes the valuation analysis by undertaking some
appropriately selected multiple- based and/or asset-based valuation techniques. Listed below
is a complete list of potential valuation measures. T he required valuation measures are two
appropriate multiple- and/or asset-based valuation. The option will be left open for groups to
evaluate further measures in order to earn additional marks. Rather than addressing every
item on the list below, groups should only consider valuation metrics that make sense for the
company. For assessment purposes, you will be evaluated on the quality and not quantity of
your analysis. It is recommended that you provide a “Valuation Summary” table, which includes
DCF valuation and a composite valuation.
The research note is the third major item you are required to submit. It should summarize: (a)
your major modelling choices and key assumptions, (b) your outlook for the company and
its industry, plus associated forecasts; and, (c) your DCF valuation and other valuation matrix,
and how they link to the outlook. Your analysis should be supported by appropriate charts and
tables. Assume the target audience involves professional investors who have a good
understanding of company modelling and valuation, and are largely interested in understanding
the basis of your analysis and DCF valuation.
More detailed suggestions are provided below.
More Detailed Suggestions
Company Model
The company model itself is the first major item in the assignment. It is envisaged that groups
will build upon the KGW model template found on Wattle. Augmentations to the KGW model
should facilitate an insightful and meaningful analysis of the company, focusing on key drivers
of the business and the company valuation. The augmented model should contain the following:
• A meaningful amount of historical data (ideally 5-10 years, unless unavailable or irrelevant)
• Separate analysis of key business segments (all linked into central accounts)
• Model focused around key drivers of the overall business and/or its segments
• Estimation of continuing value (making clear assumptions about future return on capital, etc)
• Valuation of non-operating assets (i.e. other items of value not included in DCF valuation)
• Estimation of cost of capital (use dedicated worksheet(s), and justify inputs where appropriate)
• Division of DCF-based enterprise valuation into equity and non-equity claims
• Estimate of equity value per share
• Assumptions and inputs clearly identified (ideally consolidated into separate worksheet)
• Analysis of ROIC, including decomposition (important for linking valuation to business outlook)
• Summary tables and charts (including charts of key value drivers / ROIC decomposition)
It is highly recommended that a separate sheet be established to carry all key input
assumptions (e.g. margin components, growth rates, capital spending determinants, cost of
capital inputs, etc), as well as to gather the main output, with all being linked to the model. It
is much easier to make use of the model under such a structure, rather than having the main
inputs and outputs spread throughout the model. Using a distinct colour for input assumptions
is also a useful practice, as it makes them easy to spot.

Explanatory notes should be included within the model itself, as needed for the marker (and
other team members) to understand the work done. Notes should identify items such as key
assumptions, sources, methods used, basis for forecasts, etc. They can be used to describe
modelling details: ‘big picture’ modelling choices may be discussed in the report. Ways to include
explanatory notes include:
− Create a “Notes” column, perhaps to the right of the modelled cells,
− Insert a text box (see “Insert” tab)
− Insert comments within the relevant cell itself (see “Review” tab)
Alternative Valuation Measures
P/E
Cash flow multiple
Enterprise value
Dividend yield
Price/sales
Price/book
Sum-Of-The-Parts (SOTP), or break-up
valuation Takeover valuation
Composite valuation (summarizes all measures examined, including DCF valuation)
While there is no prescription for the format, an ideal submission might incorporate these elements:
• Valuation clearly focused on prospective rather than historic earnings or cash flows (which
means accessing consensus broker forecasts to form prospective ratings for comparatives).
• Analysis should ideally address “absolute” as well as “relative” valuation issues, i.e. not only
how the stock is priced versus its comparatives or the market, but some sense of whether the
stock itself or its comparative group is cheap or expensive in its own right.
• A solid basis for establishing appropriate valuation multiples. Possibilities include reference to
history, relative versus the market, comparative companies, or fundamental determinants.
• Purvey of a sense for the links to valuation theory; such as considerations of ‘growth’ potential,
extent to which earnings are a good proxy for distributable cash flow, and risk / discount rate.
• Identification of key issues impacting your findings, e.g. validity of comparisons; sustainability
of earnings; accounting or other normalisation issues; etc.
• Dilution of EPS, etc is required for share issues, claims like convertibles, options, etc

Research Note
The research note is the third major item you are required to submit. It should summarize: (a)
your major modelling choices and key assumptions, (b) your outlook for the company and
its industry, plus associated forecasts; and, (c) your DCF valuation and other valuation matrix,
and how they link to the outlook. Your analysis should be supported by appropriate charts and
tables. Assume the target audience involves professional investors who have a good
understanding of company modelling and valuation, and are largely interested in understanding
the basis of your analysis and DCF valuation.
The format of the research note is at the discretion of the groups: do what you think is necessary
to best present your analysis within the recommended page limits. You may structure your
submission in an analyst report format (see Assignment folder at Wattle for example).
Nevertheless, for groups looking for some guidance, the following broad structure is suggested:
• Body of report (4-6 pages)
1. Summary (1 paragraph) – Convey your key messages right up front.
2. Background (1 paragraph) – Brief description of company, industry and structure of model
3. Outlook (2-4 pages) – Describe what you have assumed about the company and industry
outlook, and how it links to your modelling. Aspects like revenue growth and margins would be
addressed here. ROIC might also be addressed, especially if your analysis hinges on
sustainable profitability.
4. Other (0-½ page) – Some aspects such as capex, growth opportunities and valuation of non-
operating assets might be presented in a separate section.
5. DCF valuation (1 page) – As well as presenting the valuation, cover off on any other relevant
items for the DCF analysis, such as cost of capital and continuing value assumptions.
• Appendices (3 page limit) – Use this space to make more detail available, in support of the
write-up appearing in the body. If anything appears in the appendix, it should be referenced in
the body.
• Tables and Charts – Exhibits that are central to your story should be included in the body; others
can appear in the appendix. While this choice is up to each group, the body of the report might
contain at least the following:
− Summary table – provides an overview of the key inputs and outputs
− Presentation of key value drivers – the marker expects to see charts or a table of the four key
value drivers of revenue growth, margins (EBITA margin, NOPLAT margin), capital efficiency
(capital turnover) and ROIC (possibly before and after goodwill and intangibles). These may
appear under either the outlook or the DCF valuation section, as appropriate.
Other tables and charts that may prove useful, some of which might appear in the appendix, include:
− DCF valuation summary
− Cost of capital calculations
− Condensed financial statements (worth doing; look at a few broker reports for ideas on set-up).
• Other
− Title page: You might show company and team, possibly your DCF valuation and
recommendation.
− Referencing: Teams are expected to acknowledge sources whenever reliance is placed on data,
analysis or statements arising from private third-party sources. Information that is generally
known to ‘the market’, such as company announcements, need not be referenced. (Note: These
guidelines apply for all submissions under FINM 3005.)
− Presentation: It counts, so make your report as polished and readable as possible. Using two-
thirds of the page for text and one-third margin for charts and tables can be a good idea.
Selective use of dot points is recommended, especially when listing facts or assumptions.
− The research note should stand alone: It should not be necessary for the marker to look at any
excel files to understand your analysis. (But it doesn’t mean that the marker won’t look at your
excel files.)
Good presentation –Presentation will be evaluated as a separate category in its own right.
Some tips:
• Have a look at some broker reports as guide to potential formats.
• Try to present a clear and definite message. Strong views have much greater impact
than a collection of wishy-washy thoughts.
• Ensure that the report is logically structured. State your main message(s) at the very
front, then proceed to justify your stance. Tell a story.
• Remember that readers will want to understand the foundations of your view. Make
evident sure the key assumptions, logic and analysis underpinning your view;
and provide some sense of how your stance might be wrong.
• You should write as if the target audience is professional investors with a good
understanding of the principles of valuation and investment.
• The aim is to inform rather than impress with volume. If your case can be
presented using less pages, all the better.
• DO NOT describe the charts/tables (they are self-explainable) in words unless it is
absolutely necessary for presenting your insights.
Scenario analysis – This is compulsory.
Sensitivity analysis – This is optional. Nevertheless, additional marks may be awarded
for groups which include sensitivity analysis in a manner that enhances their investment
case. See Lecture 9 for further details on how to conduct the analysis.
The recommendation: Groups are expected to come up with a recommendation of either ‘Buy’,
‘Hold’ or ‘Sell’. This recommendation should reflect an ‘investment’ rather than ‘trading’ view.
That is, you should be informing investors with a horizon of (say) 1-3 years how they should
be approaching the stock. Feel free to add some colours around the recommendation within
the text. For example, you might wish to flag developments that would change your
recommendation (e.g. events that would turn a hold into a buy or sell). Or you might wish to
highlight shorter-term ‘trading’ considerations that an investor may wish to take into account
when adjusting their position.
Some Advice on Valuation Measures
Below is a sketch of what is expected under selected measures. More detailed guidance will
be provided via lectures, workshops and selected postings on Wattle.
PE
• The main aim is to come up with an estimate of the target PE for your stock, and derive a
valuation by: Price = PE * EPS.
• First decide the best way to arrive at the target PE, then arrive at your estimate using the data
at your disposal. Explain what you have done in the report. Data series provided should be
used selectively and intelligently. Don’t try to analyze everything that has been made available.
• Some aspects you might consider:
− Trading history of the absolute (raw) PE and relative PE versus market and/or comparable
companies, perhaps considering the industry as well as the company itself
− Reliability of comparatives; implication of any difference for the multiple
− Fundamental determinants of PEs as discussed in lectures: (a) extent to which EPS varies
from maintainable cash flows; (b) growth potential; (c) relative risk / discount rate. (Try to
demonstrate an appreciation of these issues when justifying your chosen PE, and discussing
issues such as the relevance of historical data.)
− Relation between prospective and ‘trend’ earnings
• Your PE should be applied to normalized, diluted EPS. Provide a table setting out your
calculations. It is acceptable to place this table in the appendix.
Enterprise Value
• The aim is to derive a valuation as follows: (a) estimate enterprise value by applying a target
multiple to either EBIT, EBITA or EBITDA from operations; (b) add neon-operating assets; (c)
deduct other financial claims (net debt, etc) to get an equity value; (d) divide by number of
shares.
• This part should be largely approached as a relative valuation exercise, i.e. select a target
multiple for your company by reference to the multiples for a selection of comparable
companies. Some data on comparable companies will be provided by the lecturer in due
course, although teams may look further afield if so inclined. In instances where information is
required that is difficult to source, it may be sufficient to flag what you would have done if more
information were available.
• To limit an opened-ended exercise, you are only expected to estimate multiples for 2 comps.
• Create a table setting out the calculations for each company. Include this table in your
submission.
Asset Valuations
• Price/asset backing – The aim is to select a target Price/Asset Backing ratio, and apply this
ratio to asset backing per share to arrive at a valuation. The approach should be similar to P/E
analysis, i.e. decide the target ratio after examining a range of relative and absolute data, taking
into account fundamental determinants.
• SOTP – A value is derived by breaking the company into parts, valuing each part by reference
to the value on which similar assets trade in the market, adjusting for any corporate overheads
and non- equity claims, and dividing by number of shares. The basis of the reference values
should be made clear. Presentation might be done via a single table plus accompanying notes.
• Takeover valuation – The idea is to estimate what a potential bidder might pay for the
company. The price up to which a successful bid would be both EPS-neutral and NPV-neutral
should be considered. Assumptions will need to be made about synergy benefits and funding
costs, which may require forming some sense of the nature of any prospective bidder.
You may use alternative comparable companies. Ask the lecturer for help on data.
Valuation Summary Table
It is recommended that a ‘Valuation Summary’ table be provided, which does the
following:
• Reports all valuation measures in one place, including your DCF valuation
• Summarizes by averaging across valuation measures (either simple or weighted average), to
generate a ‘composite valuation’.
• Consider providing a high/low range for each valuation measure, as well as the composite
valuation
FINM3005 Corporate Valuation
FINM6005 Applied Valuation
Marking Sheet for Group Assignment
Group Number:
Marking Criteria
50-59 pass, 60-69 credit, 70-79 distinction, 80 and above HD Grade Weight Mark
1. Company model
• Did the group effectively build on the KGW template?
• Was the model well-structured? In particular, was the model designed
to analyse an appropriate set of business drivers, given the nature of
the company?
• Was there an analysis of ROIC and its components?
• Were the forecasts coherent?
• Was the model easy to follow?
• Are there any technical errors?(eg. incorrect treatment of items, accounts
don’t balance, doesn’t reconcile to company reports, incorrect share
capital, etc.)
• Is the scenario analysis correctly conducted?
40%
2. Cost of capital
• Was the basis of the cost of capital inputs as listed below properly
explained, with supporting analysis provided where appropriate?
− Beta estimates
− Cost of debt
− Risk-free rate
− Target capital ratio
• Are there any technical errors? (e.g. failure to account for all sources
of capital, formulas applied incorrectly, etc)
10%
3. Multiple- and/or Asset-based valuation
• Is the choice of multiple- and/or asset-based valuation measure(s)
appropriate for the company and industry?
• Is the valuation analysis technically correct?
• Is there a table clearly setting out the calculations?
10%
4. Research Note
• A recommendation is provided (i.e. Buy, Sell or Hold); Clear investment
advice is offered; Foundations for recommendation and advice are well-
explained (including setting out link with valuation analysis)
• Important assumptions or uncertainties are highlighted
• Valuation analysis from DCF, multiple and/or asset based valuation is
appropriately presented and integrated into the investment case
• Logical structure to discuss and flow of argument; Note is polished and
easy to read; Effective use of tables and charts
• A final valuation is provided and its basis made apparent, including
Valuation Summary table
30%
5. Overall evaluation
• Are the outlook and forecasts soundly based, and demonstrate
appreciation of the key business drivers?
• Was the basis of DCF valuation apparent, including clear links to the
business outlook and key value drivers?
• Examination of additional (relevant) valuation metrics
• Appropriate sensitivity analysis
10%
Raw mark before penalty
15 Applicable late penalties TOTAL after adjustment
Marker’s Comments: