The valuation of Kinh Do Corporation using Discounted Cash Flow method
Nguyen, Tinh (2016)
Nguyen, Tinh
Haaga-Helia ammattikorkeakoulu
2016
All rights reserved
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-201605208819
https://urn.fi/URN:NBN:fi:amk-201605208819
Tiivistelmä
This Bachelor’s thesis presents a guide on how to value a company using the discounted cash flow method with a case study of Kinh Do Corporation (KDC). The main objective is to give readers a walk-through of how a valuation model is commonly done within the field of finance.
The first part of this thesis provides information on the research background, key concepts behind valuation and introduction to the case study company KDC. Next, the theoretical framework goes deeper into the theories of investment valuation and discounted cash flow method, with a detailed explanation of free cash flow to firm. The last part is the applied valuation model created for KDC. The structure of the valuation follows that of the theoretical framework.
There are many methodologies of valuation introduced in this thesis. However, the main focus is on the discounted cash flow method because it is one of the most widely-used methods by analysts, banks and investments institutions. The thesis primarily concentrates on free cash flow to firm techniques for the purpose of the case study which aims to estimate the enterprise value of KDC. The final outcome concerning KDC is then further investigated in a sensitivity analysis and benchmarked with the price offer made by Mondelēz International at the end of 2014.
The results show that the value of KDC is actually lower than what it is valued by the market and by Mondelēz International. Mondelēz International acquired only 80% of KDC’s snacks operations but it paid out a price that is much higher than the value of KDC as a whole. If the valuation is correct, it is fair to say that KDC was over-priced. The decision to pay such a high price for only 80% of the snacks business which contributed more than 50% to KDC revenue could be one of Mondelēz International’s long-term strategic plans. It is for certain that Mondelēz International would substantially benefit from KDC’s already established consumer base, distribution channels, retail network as well as pre-existing manufacturing infrastructure.
The first part of this thesis provides information on the research background, key concepts behind valuation and introduction to the case study company KDC. Next, the theoretical framework goes deeper into the theories of investment valuation and discounted cash flow method, with a detailed explanation of free cash flow to firm. The last part is the applied valuation model created for KDC. The structure of the valuation follows that of the theoretical framework.
There are many methodologies of valuation introduced in this thesis. However, the main focus is on the discounted cash flow method because it is one of the most widely-used methods by analysts, banks and investments institutions. The thesis primarily concentrates on free cash flow to firm techniques for the purpose of the case study which aims to estimate the enterprise value of KDC. The final outcome concerning KDC is then further investigated in a sensitivity analysis and benchmarked with the price offer made by Mondelēz International at the end of 2014.
The results show that the value of KDC is actually lower than what it is valued by the market and by Mondelēz International. Mondelēz International acquired only 80% of KDC’s snacks operations but it paid out a price that is much higher than the value of KDC as a whole. If the valuation is correct, it is fair to say that KDC was over-priced. The decision to pay such a high price for only 80% of the snacks business which contributed more than 50% to KDC revenue could be one of Mondelēz International’s long-term strategic plans. It is for certain that Mondelēz International would substantially benefit from KDC’s already established consumer base, distribution channels, retail network as well as pre-existing manufacturing infrastructure.