Topic outline

  • 1. Introduction

    Welcome to the Module "Continuing Value!" This introductory section gives a brief overview of the module and explains why "Continuing Value" is such an important element in virtually any firm valuation.



    The main learning goals of this module are:
    • Understand the relevance of Continuing Value (Terminal Value) in virtually any firm valuation.
    • Learn how growth, investments, and value creation are related in the long-run.
    • Use a simple model to estimate continuing value.
    • Learn how to use this simple model to value mature firms.
    • Know alternative ways to estimate continuing value.
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  • 2. A Naïve Model

    This section introduces a simple yet very popular way to estimate the continuing value of a firm: The model of a growing perpetuity after the explicit forecast period.

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  • 3. Growth and Investment in the Steady State

    In this section, we start thinking about "reasonable" assumptions for the continuing value period. In particular, we discuss how growth, investment, and value creation are related. We also discuss a model that allows for exceptional growth after the forecast period.

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  • 4. Normalized Projections for Continuing Value

    In this section, we derive "normalized" projections for the free cash flow at the beginning of the continuing value period and we link the estimation of this normalized free cash flows to the discussion about growth and investments from the previous section. With this information at hand, we then put everything together and estimate the value of a hypothetical firm using normalized projections for continuing value.

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  • 5. Continuing Value using Multiples

    This section looks at an alternative way to estimate continuing value: relative valuation. We show how this approach works and what we have to considerate when using relative valuation.

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  • 6. Valuation of Mature Companies

    In the last step of the module, we see how we can use the considerations from the previous sections to value mature companies. As it turns out, we often only need 5 pieces of information to achieve a reasonable first-pass valuation of such companies.
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