Continuing value will accounts fro 56% to 125% of total value.
There large percentages do not necessarily mean that most of a company’s value will be created in the continuing value-period.
Often continuing value is large because profits and other inflows in the early years are offset by outflows for capital spending adn working capital investments- investments that should generate higher cash flow in later years.
Continuing value (Year T) = NOPLAT (Year T+1)* (1 – g/RONIC) / (WACC -g)
NOPLAT (Year T+1): Net operating profit less adjusted taxes in the first year after the explicit forecast period
g = expected growth rate in NOPLAT in perpetuity
The best estimate is probably the expected long-term rate of consumption growth for the industrys’s products, plus inflation.
Sensitivity analyses, also are useful for understanding how the growth rate affects continuing-value estimates.
RONIC = expected rate fo returen on new invested capital
For many companies, set RONIC equal to WACC. However, for companies with sustainable competitive advantages (e.g., brands and patents), you might set RONIC equal to the return the company is forecast to earn during later years of the explicit forecast period.
WACC = weighted average cost of capital
This should incorporated a sustainable capital structure and an underlying estimate of business risk consistent with expected industry conditions.
1) The length of the explicit forecast affects the company’s value
2) People confuse return on new invested capital (RONIC) with return on invested capital (ROIC). Setting RONIC equal to WACC in the continuing value formula does not imply the company will not create value beyond the explicit forecast period.
Since return on capital from existing capital will remian at ariginal levels, ROIC will only gradually approach the cost of capital.
3) Some analysts incorrectly infer that a large cntinuing value relative to the company’s total value means value creation occurs primarily after the explicit forecast period.
|Explicit value予想期間||Value of explicit FCF||Terminal Value|
企業価値評価 マッキンゼー・アンド・カンパニー、 ティム・コラー