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Company valuation under IFRS

Interpreting and forecasting accounts using International Financial Reporting Standards

By Nick Antill and Kenneth Lee
Cover of Company valuation under IFRS (Hardback) by Nick Antill andKenneth Lee

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About the Authors

Nick Antill

Nick Antill is a Director of EconoMatters, an energy consultancy offering an extensive range of skills to clients involved with gas markets worldwide. Prior to this, Nick was responsible for Morgan Stanley's European team, and personally produced most of its research on the integrated oil companies.

He spent 16 years in the City as a ... Read more on Nick Antill

Kenneth Lee

In what now seems like a previous life, Kenneth was an accountant and tax consultant with Arthur Andersen in Dublin. He then held various positions in the financial training business culminating in becoming the accounting specialist at BG training. There he trained analysts from all the major banks and published 'Accounting for Investment Analysts: an international perspective'. In 2009, Kenneth ... Read more on Kenneth Lee

Contents Listing

Chapter One - It's not just cash; accounts matter
1. Introduction - Valuation refresher
2. Distributions, returns and growth
3. Cash, accruals and profits
4. The Economic Profit model
5. The real world of specific forecasts
6. Introducing debt

Chapter Two - WACC - Forty years on
1. Risk and Return
2. Diversification and portfolio effects
3. The problem of growth
4. Leverage and the cost of equity
5. Building in tax shelters
6. Time varying WACC
7. The walking wounded - real options and capital arbitrage
8. International markets and foreign exchange rates
9. Conclusions on discount rates

Chapter Three - What do we mean by 'return'?
1. IRR versus NPV
2. Calculating CFROI
3. Another approach: CROCI
4. Uses and abuses of ROCE

Chapter Four - Key issues in accounting and their treatment under IFRS
1. Revenue recognition and measurement
2. Stock options
3. Taxation
4. Accounting for pension obligations
5. Provisions
6. Leasing
7. Derivatives
8. Fixed assets
9. Foreign exchange

Chapter Five - Valuing a company
1. Building a forecast
2. Ratios and scenarios
3. Building a valuation
4. Frequent problems
5. Three period models
6. Conclusions regarding basic industrials

Chapter Six - The awkward squad
1. Utilities
2. Resource extraction companies
3. Banks
4. Insurance companies
5. Property companies

Chapter Seven - An introduction to consolidation
1. Introduction
2. Treatment of Investments
3. Methods of consolidation
4. Further issues in consolidation
5. Accounting for associates and joint ventures
6. Purchase accounting and uniting of interests
7. Foreign subsidiaries
8. Accounting for disposals
9. Modelling mergers and acquisitions

Chapter Eight - Conclusions and continuations
1. Conclusions
2. Continuations

Further reading
Appendices
IAS or IFRS in, or coming into, force
IFRS in Emerging Markets
Chinese Accounting Standards - major differences with IFRS
Analysis formulae
Index
Chapter One - It's not just cash; accounts matter
1. Introduction - Valuation refresher
2. Distributions, returns and growth
3. Cash, accruals and profits
4. The Economic Profit model
5. The real world of specific forecasts
6. Introducing debt

Chapter Two - WACC - Forty years on
1. Risk and Return
2. Diversification and portfolio effects
3. The problem of growth
4. Leverage and the cost of equity ...

Jacket Text

International Financial Reporting Standards (IFRS) are now mandatory in many parts of the world, including Europe, Australia and China. In addition, many countries are in the process of IFRS adoption. Lastly, foreign registrants in US companies no longer have to undertake a costly US-IFRS reconciliation. Therefore, it is clear that investors, analysts and valuers need to understand financial statements produced under IFRS to feed in to their valuations and broader investment decisions.

Written by practitioners for practitioners, the book addresses valuation from the viewpoint of the analyst, the investor and the corporate acquirer. It starts with valuation theory: what is to be discounted and at what discount rate? It explains the connection between standard methodologies based on free cash flow and on return on capital. And it emphasizes that, whichever method is used, accurate interpretation of accounting information is critical to the production of sensible valuations. The authors argue that forecasts of cash flows imply views on profits and balance sheets, and that non-cash items contain useful information about future cash flows - so profits matter.

The book then addresses the implications for analysis and valuation of key aspects of IFRS including:

- Pensions
- Stock options
- Derivatives
- Provisions
- Leases

The text also sets out which countries use GAAP, as well as the key differences between IFRS and US GAAP treatments of these issues, in addition to their implications for analysis.

A detailed case study is used to provide a step-by-step valuation of an industrial company using both free cash flow and economic profit methodologies. The authors then address a range of common valuation problems, including cyclical or immature companies, as well as the specialist accounting and modelling knowledge required for regulated utilities, resource extraction companies, banks, insurance and real estate companies. Accounting for mergers and disposals is first explained and then illustrated with a detailed potential acquisition using real companies.

Media Coverage

The International Journal of Accounting, Vol. 44

Company valuation under IFRS
Interpreting and forecasting accounts using International Financial Reporting Standards
Nick Antill, Kenneth Lee

This book is a practitioners' guide to company ...

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Media Review

A very useful resource for anyone interested in company valuation in general and IFRS in particular.- The International Journal of Accountingissue 44, 2009

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