DES Chapter 9
The Starting Point for
Corporate Valuation:
Historical Financial
Statements
DES Chapter 9
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Overview of Valuation Process Home Depot
Input historical financial statements into
the file: Home Depot (for Ch 9-11,
WACC, default inputs).xls. (This file
will be called Home Depot.xls for short.)
Provide projections for key performance
drivers.
Obtain preliminary intrinsic value estimate.
Refine projections and perform sensitivity
analysis to determine impact of plausible
alternative performance scenarios.
DES Chapter 9
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Steps to Estimate Value Using the
Corporate Valuation Spreadsheet
The valuation spreadsheet has seven
interrelated worksheets, each of which
performs an essential function:
(1) Proj & Val
(2) Inputs
(3) WACC
(4) Hist Analys
(5) Condensed
(6) Comprehensive
(7) Actual
(next slide)
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Steps to Estimate Value (Continued)
DES Chapter 9
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Steps to Estimate Value (Continued)
Step 1: Find the actual historical financial
statements for a company, and insert them
into the Actual worksheet. (Chapt 9)
Step 2: Put the actual financial statements into a
standardized format using the
Comprehensive worksheet. The
comprehensive format has just about all the
entries needed to capture variations in the
formats of most companies’ financial
statements. (Chapter 9 and appendix)
(continued)
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Steps to Estimate Value (Continued)
Step 3: The spreadsheet will condense the
standardized format into statements on the
Condensed sheet. These sheets have enough
detail to accurately value a firm but do not
have so much detail that the analysis
becomes overly complicated. (Chapter 10
and appendix)
Step 4: The Hist Analys worksheet begins the
analysis by calculating the historical free
cash flows and key ratios. (Chapter 10)
(continued)
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Steps to Estimate Value (Continued)
Step 5: The WACC worksheet is structured to lead
you through the calculation of the firm’s cost
of capital. (Chapter 11)
Step 6: Project the financial statements by
choosing key inputs, such as the growth rate
in sales, the ratio of costs/sales, interest
rates, etc., on the Inputs worksheet.
(Chapter 12 and appendix)
(continued)
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Steps to Estimate Value (Continued)
Step 7: The Proj & Val worksheet takes your
chosen inputs for the key ratios and
projects the financial statements, calculates
free cash flows and performs a valuation
analysis. (Chapter 13)
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The “Actual” Worksheet
Get historical data for a company. The best
sources are Thomson ONE - Business
School Edition, or Thomson Research
(formerly Global Access Disclosure) .



Income Statements
Balance Sheets
Statement of Cash Flows
Paste the data into the “Actual” worksheet

This has already been done for Home Depot.xls.
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The “Comprehensive” Sheet
A fact - details of financial statement formats vary
from one company to another, and even from one
year to the next for the same company.
The problem - to “standardize” financial
information across firms and years so it can be
used in analysis.
The solution - “mapping” the financial data into a
common format that contains only the essential
level of detail necessary for valuing a company.
(continued)
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The “Comprehensive” Sheet (continued)
The Comprehensive sheet is long and has
many items, but this enables it to “capture”
Actual data in virtually any format (see next
slide).
Even though the Comprehensive sheet is
long, it is in a standardized format.
(continued)
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The “Comprehensive” Sheet (continued)
To link “Actual” to “Comprehensive,” we “map”
the data from the Actual Worksheet into the
Comprehensive Worksheet.
Find an entry on the “Comprehensive” sheet that
matches an “Actual” entry.


Enter a formula on the “Comprehensive” sheet that
refers to the appropriate “Actual” cell.
But we’ve already done this for you!
(continued)
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The “Comprehensive” Sheet (continued)
Consider the “NON-OPERATING INC” item in cell
B70 of Home Depot’s “Actual” income statement:
DES Chapter 9
(continued)
13
The “Comprehensive” Sheet (continued)
The item is “mapped” into cell B31 of the
“Comprehensive” worksheet by entering
the formula “=Actual!B70” in that cell
(next slide):
(continued)
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formula “=Actual!B70”
(continued)
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The “Comprehensive” Sheet (continued)
Data from either Thomson ONE Business School Edition, or Thomson
Research has up to 10 years of annual
data in a standardized format.
The mapping in the valuation spreadsheet
is already developed for this format.
Should you use data from another source,
you will adjust the formulas accordingly.
Detailed guidelines for this task are provided in
Exhibits 9-4 through 9-7 and elsewhere.
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