Valuation in Emerging Markets

[Thecodont]

Both the CFAI and Schweser books give a VERY extended approach to converting between nominal and real NOPLAT, FCinv, WCinv taxes etc. It seems hard to believe that CFAI will have us do anything like this on the exam. To become proficient at completing all the tables that Schweser does seems like a huge time sink. I was thinking about just getting the big picture, not worrying about the calculations and moving on. I would very much like others opinions as to what they did here. Thanks

 

[stunnerrunner]

The LOS says “evaluate an emerging market company using a discounted cash flow model based on nominal and real financial projections” - to me, that means you probably won’t have to calculate that on the exam (unless someone else feels differently).
I think knowing the steps would be most useful:
1) forecast real EBITDA and FCINV
2) forecast nominal depreciation, NOPLAT, FCINV, and WCINV
3) forecast real NOPLAT
4) forecast nominal and real free cash flows
5) estimate firm value using a free cash flow model in both real and nominal terms

 

[el duque]

One you go through it a few times it’s not too bad. Stunnerrunner pretty much covered what I was thinking.
I will add one quick thing: Understanding how inflation and nominal rates affect the growth of some accounts versus others (e.g. Sales vs. Fixed Assets) and how it affects certain ratios.