How_to_valuation_a_company

How_to_valuation_a_company - How Do You Value a Company?...

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Unformatted text preview: How Do You Value a Company? December 2, 2003 Graduate Finance Association Stern School of Business Agenda 1. Overview 2. Public / Trading Comparables 3. Acquisition Comparables 4. Discounted Cash Flow (Firm, Equity) 5. Other Techniques (LBO, Private company, Liquidation value, Option value) The most common types: Value based on public multiples (relative value) Implied value in public securities markets (IPO analysis) Focused on forward looking EBITDA, EPS or Cash Flow Overview Acquisition Comps Trading Comps DCF Value based on multiples paid for comparable companies/assets in M&A transactions Implied value in public and private market Focused on multiples of historical EBITDA, EPS or Cash Flow PV of cash flows Inherent or intrinsic value Best captures the business in transition Sensitivity analysis / Synergies analysis Public Comps DCF M&A Comps Others Some Valuation Concepts: Equity Value-- Value of shareholders interest-- Other common terms: - market value, offer value, market capitalization Enterprise Value (EV)-- Includes all forms of capital:- equity, debt, preferred stock, minority interest-- Other common terms: - aggregate value, firm value, total capitalization, adjusted market value, transaction value EV = Equity market value + Net Debt + Pref. + Minority Interest What are my assets worth? How did I finance them? Overview Public Comps DCF M&A Comps Others Some Valuation Concepts (contd): EBIT = E arnings B efore I nterest and T axes-- Income from operations before the effects of the financing and taxes- income independent of capital structure Why use EBIT? -- Operating Income ~ EBIT- measures of profitability independent of capital structure- interest expense is a tax shield Overview Public Comps DCF M&A Comps Others Some Valuation Concepts (contd): Overview Public Comps DCF M&A Comps Others EBITDA = E arnings B efore I nterest, T axes, D epreciation and A mortization-- Quick and dirty approximation of operating cash flow- D&A are non-cash expenses - If D&A are very high, then EBITDA growth must be supported by high capital expenditure (focus on EBIT) Some Valuation Concepts (contd): Overview Public Comps DCF M&A Comps Others Multiples-- Provide a measure of relative valuation to an underlying financial item- On December 8, 2002, ABC Corp. traded at 45x FY03 EPS (forward EPS multiple)- On December 8, 2002 XYZ Inc. was sold for 10x LTM EBITDA (trailing / historical multiple)-- Allow for relative comparisons- Between similar companies and/or similar transactions (ABC Corp. was sold for 16x 2003 EBITDA is that a good price?)- With historical performance (Historically, MBA Ltd. has traded between 50-60x next FYs EPS. Today it trades at 35x any conclusions?) Let us begin.....
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This note was uploaded on 11/28/2010 for the course FINA FINA111 taught by Professor Lynnpi during the Spring '09 term at HKUST.

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How_to_valuation_a_company - How Do You Value a Company?...

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