2This quiz will cover…¨RelaEve ValuaEon¤DefiniEonal consistency checks¤DistribuEonal characterisEcs¤Drivers of mulEples¤ApplicaEon tweaks¨Private company valuaEon¤Discount rate adjustments¤Cash ﬂow adjustments¤Post-valuaEon adjustments
3MulEples: The variaEonsNumerator = What you are paying for the assetDenominator = What you are getting in returnMarket value of equityMarket value for the firmFirm value = Market value of equity+ Market value of debtMarket value of operating assets of firmEnterprise value (EV) = Market value of equity+ Market value of debt- Cash Revenuesa. Accounting revenuesb. Drivers- # Customers- # Subscribers= # unitsEarningsa. To Equity investors- Net Income- Earnings per shareb. To Firm- Operating income (EBIT)Book Valuea. Equity= BV of equityb. Firm= BV of debt + BV of equityc. Invested Capital= BV of equity + BV of debt - CashMultiple =Cash flowa. To Equity- Net Income + Depreciation- Free CF to Equityb. To Firm- EBIT + DA (EBITDA)- Free CF to Firm
4Example: Spring 2009 (Problem 1)You have been asked to assess the relaEve valuaEons of four companies,with significant cross holdings. You have been provided with the followinginformaEon on the companies:The accounEng numbers (including debt) come from the firm’s consolidatedfinancial statements, and you can assume that both minority holdings andminority interests are in market value terms. Based on the EV/EBITDA raEo,which of these firms is the cheapest on a consolidated basis, assuming thatthey are equivalent on risk and growth characterisEcs?
5SoluEonCompany B is the cheapest company.Since EBITDA does not reflect income from minority holdings, subtract minority holdings.Since EBITDA reflects 100% of consolidated subsidiary’s income, add minority interests.
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Market Value, Privately held company, Public company