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1.8 Summary

In summary, we have organized the book according to the sequence one would generally follow in performing a valuation. Chapter 2 shows how to perform preliminary financial analysis on a potential business project. Our goal ultimately is to be able to evaluate the present value relation in Equation 1 for the project at hand. Chapter 3 starts this process by demonstrating how to calculate future financial statements for the project. Chapter 4 then shows how you take these forecasts and generate free cash flow forecasts, the numerator in Equation 1. Chapter 5 then presents several approaches for calculating a discount rate, the denominator in Equation 1, for the project. In Chapter 5, you also learn that financing choices can have value implications for any project. Chapter 6 shows how to incorporate these value implications in the evaluation of Equation 1. In Chapter 6, we also bring together the evaluation of the numerator and denominator of Equation 1 to finish the valuation. Thus, by the end of this book, you should have a solid conceptual understanding of valuation as well as a substantial amount of practical knowledge about how to go about executing a valuation of a potential business decision.

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