Corporate Finance 1

Further separated

Because if a market is non-functional or bad in any way, the two need each other in order to close gaps. 

Fundamental approach

Comparable approach

Cost/Reconstruction approach

It is one of the possible methods for firm valuation. 

Dividends, earnings models, DCF approaches
With, let's say, intellectual property, which ist not patented, you would analyze the workflow which can be generated through these non-tangible assets.

The comparable approach is a method of firm valuation. 

It is important to have comparable, and recent firms to compare the firm to. 
The comparability-based pricing might turn out higher than the fundamental approach, since with the first approach, you look at the numbers you might be able to generate in the future and not "just" what others value themselves or would pay.
 

It is a method for firm valuation. 

I build the company by myself. It bight be cheaper and less risky to just set the new company up by myself. 

Novartis wants to buy the whole company or at least the majority share, so they can manage and control the assets. --> entity value is of interest.

Other companies, such as pension funds, will only want a small percentage of companies such as Nestlé or Roche, so that they can make profit off of these percentages. Here, the equity value is of interest.

Value generation

• Ultimately, the firm must be a cash generating activity. 
• The cash flows produced by the firm must exceed the cash flows from the financial markets (for equal level of risk). 

1. What long-term investments should the firm engage in?
2. How should the firm raise the money for the required investments?
3. How much short-term cash flow does a company need to pay its bills?
4. How to implement the efficient and valuable risk management?