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Financial Valuation and Modelling

Sheeba Kapil

ISBN: 9789354246036

536 pages

eBook also available for institutional users 

INR 899


Post-Covid 2019, the business world has entered a fast-forward era of disruption, digitization, realignment of value chain activities, and innovation. Valuation has become an integral part in every sphere of day-to-day business activities. Financial Valuation and Modeling is a comprehensive guide to valuation concepts, application, valuation models, and investment banking. This book also covers emerging concepts and approaches for patent & IPR valuation, brands, startup valuation, real-options valuations, M&A valuation, merger modeling, relative valuation, LBO valuation and modeling, and undervaluation and financial distress. This book uses valuation methods that are currently used by valuators across the globe, Wall Street, and Dalal Street. With each method and concept, it builds a chronological knowledge base and understanding, defining key terms, financial concepts, valuation methods, various approaches, and modeling processes throughout the book.

The book takes the readers through the various underlying concepts, methodologies, Excel-based valuation models, and simulation models to better understand the valuation concepts. The book contains tables, graphs, illustrations, real business cases, and Excel models to understand valuation across assets and investment decisions. With simple and lucid language and excellent presentation, this book would be immensely useful for MBA (Finance) students, chartered accountants, company secretaries, lawyers, and management professionals as it provides deep understanding of valuation and valuation models. 


Model Spreadsheets

Chapter Name

Excel Models


Understanding DCF Valuation

Chapter 3 Model 1 DCF Modeling

Discounted cash flow (DCF) is a valuation model used to estimate the value of a firm, project based on its expected future cash flows.

Chapter 3 Model 2 FCFF Model

FCFF, or Free Cash Flow to Firm, is the cash flow available to all stakeholders, such as debt holders,  common shareholders, etc. It is the unlevered cash flow or surplus cash flow available to a business if it was debt-free. FCFF is used to value the firm using DCF approach.

Cost of Capital

Chapter 4 Model 1 Cost of Capital

Cost of capital measures the return required to compensate the stakeholders  for the risk they take. The model calculates the weighted average cost of capital raised from different stakeholders. For cost of equity, we use CAPM model.

Chapter 4 Model 2 Capital Structure Model

Capital structure model helps to ascertain the capital structure modelling various debt and equity values. The model simulates the return to stakeholders and return to equity owners at different debt levels.

Chapter 4 Model 3 Unlevered Beta & Application Model

Beta calculated with market price data can be unlevered for various business decision applications. The three broad applications are built on unlevered beta model to determine the adjusted beta.

Undervaluation and Financial Distress

Chapter 5 Altman Z-Score Model

The Altman Z-score model is popularly used for determining whether a company, especially in the manufacturing space, is headed for bankruptcy.

Relative Valuation

Chapter 6 Model 1 Relative Valuation Model Using Comparables

Valuation model where relative peer comparable companies are used for valuation. The peer group comparable are selected based on the business model, target markets segment, size, etc.

Chapter 6 Model 2 Relative Valuation Model Using Transaction Precedence Multiples

Valuation model where relative peer groups transactions are used for valuation of similar transactions.

Start-up Valuation

Chapter 7 Term Sheet and Series A Funding Valuation Model

Term sheet and start-up valuation model for pre-money and post-money valuation and share issuance for a start-up firm.

M&A Valuation and Merger Modelling

Chapter 9 Merger Modeling

Merger model is a comprehensive end-to-end M&A simulation model that models the proforma combination of acquirer and target in an M&A deal, with purchase price ratio (PPR) analysis, sources and uses of funds, proforma balance sheet with adjustments, EPS accretion and dilution deal analysis, valuation of target with DCF model, comparable model, transaction multiple model, and football field.

LBO Valuation and Modelling

Chapter 11 LBO Modeling 1

Leveraged buyout (LBO) Model 1 simulates end-to-end leveraged buyout deal incorporating sources uses of funds, equity purchase price, proforma balance sheet and debt schedule, IRR return with exit values, with two-factor sensitivity analysis.

Chapter 11 LBO Modeling 2

Leveraged buyout (LBO) Model 2 is about simulating end-to-end leveraged buyout deal incorporating equity purchase price, sources uses of funds, debt schedule, cash flow balance, MOIC, and IRR return with exit values, with one-factor sensitivity analysis.

Real-Option Valuation

Chapter 12 Real Option Valuation

Real-option model using Black–Scholes for valuing investment options to expand, delay, and abandon investments.

Intellectual Property Rights and Patent Valuation

Chapter 16 Patent Valuation Model

Patent valuation model values the patent using royalty rate with DCF approach.

Other books by Dr. Sheeba Kapil

Mergers and Acquisitions: Strategy, Valuation, Leveraged Buyouts, and Financing

Financial Management


About the Author


Chapter 1 The Valuation Business

1.1 Introduction

1.2 Valuation Approach

1.3 Valuation Spectrum

1.4 Asian Economies and Shareholder Return

1.5 Valuation and Share Price

Chapter 2 Business Valuation

2.1 Introduction

2.2 The Historical Cost Approach

2.3 The Residual Income Approach

2.4 The Multiples Approach

2.5 The Dividend Discount Model

2.6 The Discounted Cash Flow Approach

2.7 Economic Value Added

Chapter 3 Understanding DCF Valuation

3.1 Introduction

3.2 Components of DCF

3.3 Valuing Firm with DCF

3.4 Unlevering Beta and Firm Valuation

Chapter 4 Cost of Capital

4.1 Introduction

4.2 Defining Cost of Capital

4.3 Opportunity Cost of Capital

4.4 Mode of Financing

4.5 Sources of Funds

4.6 Cost of Debt

4.7 Cost of Debt and Tax Advantage

4.8 Determining Cost of Debt

4.9 Synthetic Credit Rating

4.10 Cost of Equity ke

4.11 Weighted Average Cost of Capital

Chapter 5 Undervaluation and Financial Distress

5.1 Introduction

5.2 Trading and Earnings Multiples and Undervaluation

5.3 Enterprise Value Multiples

5.4 EV/Sales


5.6 Financial Distress and Undervaluation

5.7 Managing Financial Distress

Chapter 6 Relative Valuation

6.1 Introduction

6.2 Steps in Comparable Analysis

6.3 Equity Value

6.4 Enterprise Value


6.6 Gross Profit Margin

6.7 Growth Metric

6.8 Credit Profile

6.9 Precedent Transaction Analysis

Chapter 7 Start-Up Valuation

7.1 Introduction

7.2 Convertible Debt for Start-Ups

7.3 Equity Series Round

7.4 Pre- and Post-Money Valuations

7.5 Future Dilution

7.6 Option Pool

7.7 Preferred Stock and Liquidation Preference

Chapter 8 Private Equity and Valuation

8.1 Introduction

8.2 Functions of a PE Firm

8.3 Structure of a PE Firm

8.4 Private Equity and Hedge Funds

8.5 PE Investment Strategy

8.6 Types of Private Funds

8.7 Regulation of PE Market

8.8 Factors Responsible for Private Equity Growth

8.9 PE in India

Chapter 9 M&A Valuation and Merger Modelling

9.1 Introduction

9.2 Purchase Price and Stock Payment

9.3 Pro Forma Balance Sheet

9.4 Valuation of Target with Multiples

Chapter 10 LBO Economics

10.1 Introduction

10.2 LBO Sponsors

10.3 LBO Mode of Target Acquisition

10.4 Criteria for Selecting LBO Candidates

10.5 LBO Capital Structure

10.6 Concept of Financial Leverage and Risk

10.7 History of LBOs

10.8 Role of Private Equity Investors

10.9 Theories of LBOs

10.10 Exit Strategies for LBO

10.11 LBOs in India

Chapter 11 LBO Valuation and Modelling

11.1 Introduction

11.2 LBO Economics

11.3 LBO Valuation

Chapter 12 Real-Option Valuation

12.1 Introduction

12.2 DCF and Real Options

12.3 Option Basics

12.4 Real-Option Binomial Model Approach

12.5 Real Option with the Black–Scholes Model

12.6 The Black–Scholes Equation

12.7 Categories of Real-Option Opportunities

12.8 Conclusion

Chapter 13 Brand Valuation

13.1 Introduction

13.2 M&A and Brand Valuation

13.3 Brand Valuation Methods

13.4 IFRS and Brand Valuation

13.5 Intangible Assets

13.6 Value Drivers for Valuation

Chapter 14 Hedge Funds

14.1 Introduction

14.2 Hedge Funds and M&A

14.3 Characteristic Features of Hedge Funds

14.4 Growth of Hedge Funds

14.5 Hedge Fund Indices and Databases

14.6 Types of Hedge Fund Investors

14.7 Hedge Fund Investment Strategies

Chapter 15 Investment Banks

15.1 Introduction

15.2 Investment Bank Structure

15.3 Investment Bank Functions

15.4 Investment Bank Fee

15.5 Regulation of Investment Banks

15.6 Investment Banks in India

Chapter 16 Intellectual Property Rights and Patent Valuation

16.1 Introduction

16.2 Categories of Intangible Assets

16.3 India and Trips

16.4 Indian IPR Regulations

16.5 Patent Law in India

16.6 Accounting for Intangible Assets

16.7 IFRS 3 and Intangible Assets

16.8 Valuation of Intangible Assets

16.9 Valuation Methods

16.10 IPR and Patent as Financial Asset

16.11 IPR and Patent Taxation



After quickly skimming the contents and a few chapters, I think the book aims to build a thorough and fundamental framework of financial valuation and modeling through various theoretical approaches and coverage of business implications in the capital market. This book also provides the comprehensive knowledge and tools that the readers may seek for addressing the increasingly complicated valuation of the businesses and investments in the real business environment.

—Dennis Wu, Managing Director, Blue Point Capital Partners

Dr. Sheeba’s book is wonderfully insightful. This is a rare book that integrates financial management concepts and practical aspects of business valuation. Complex valuation techniques as business goes through different life cycle are explained in a simplified manner. A must read.

—Ajay Garg, Director, Ernst & Young

Dr. Kapil has created a valuable resource for students and entry-level investment banking analysts. Her concise and readable text gives relevant examples and guidance on best-practice valuation techniques for the entire range of investments and acquisitions. I also recommend Dr. Kapil’s text as a good resource for more experienced practitioners who need to value an unfamiliar investment type or situation.

—Dr. Jack Farmer, Academic Director, New York Institute of Finance (NYIF)

The book Financial Valuations and Modeling is an extremely practical and great guide to anyone entering to learn valuation markets and also those working in this field. The book is very well defined, incisive, oriented and comprehensible including a lot of examples and numerical illustrations which are very handy to understand the true concepts of underlying Valuation and Modeling. I must say that this book is one of the finest books on this subject and can be used as an academic and as well as a reference book in the global corporate world. I highly recommend Dr. Kapil’s book, to all those who seek to know and understand the Financial Valuation and Modeling 'As IT IS'.

—Ritesh Kumar, Vice President, Bank of America, Dallas (DFW Markets)


A very comprehensive book on valuation providing up-to-date insights and practical advice on how to create, manage, and measure an organization's value. The case studies perfectly illustrate the valuation techniques and application in the real-world situations. The sections on Start-up valuation, Brand, and IP valuation are very appealing. A good read for both beginners and experts.

—Arvind Modi, General Partner, IFA Private Equity Fund

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