Investment Analysis and Valuation
Valuation toolkit
This domain tests fundamental analysis and valuation in a market with limited comparables, concentrated ownership and country risk. Candidates should connect cash flows, discount rates and relative multiples, and understand bonds.
Core methods
- DCF: discount free cash flow to firm at WACC or free cash flow to equity at cost of equity; terminal value must use a sustainable growth rate below the long-run nominal growth rate.
- Relative valuation: P/E, P/B, EV/EBITDA and dividend yield; adjust for growth, margin, leverage and liquidity.
- Bonds: price is the present value of coupons and principal; yield and duration measure return and price sensitivity.
- Mongolia-specific inputs may include a country risk premium, inflation and FX assumptions.
Worked example
Next-year FCFF is MNT 10.0 billion, WACC is 13%, and sustainable growth is 3%. Year-2 FCFF = 10.0 × 1.03 = 10.3. Terminal value at end of year 1 = 10.3 / (0.13 − 0.03) = MNT 103.0 billion. PV of TV = 103 / 1.13 = MNT 91.15 billion. PV of year-1 FCFF = 10 / 1.13 = MNT 8.85 billion. Enterprise value = MNT 100.0 billion; subtract net debt for equity value. The reasoning grows cash flow before capitalizing and discounts the terminal value one year.
Traps
- Using growth greater than WACC.
- Discounting nominal cash flow at a real rate.
- Applying a developed-market P/E without a country or liquidity adjustment.
- Ignoring dilution and controlling-shareholder effects.
- Treating EBITDA as cash flow.