7) Valuations

Question 1

what is the value of something?

Answer 1

the PV of all its future cash flows

Question 2

what is FV in perpetuity?

Answer 2

PV / i

Question 3

why do we value op and non-op items separately?

Answer 3

as they have different risk and different returns

Question 4

what do we assume during the planning period?

Answer 4

cash flows can be predicted and we include all significant stages we expect to happen

Question 5

what do we assume in the post-planning period?

Answer 5

cash flows will continue at a steady rate perpetually

Question 6

why do we use EBIT in our calculation?

Answer 6

it is accurate as to what was actually paid; it removes interest (already in WACC) and non-cash, non-operating items

Question 7

what is net working capital?

Answer 7

inventory + accs receivable + operating cash - accs payable

Question 8

what assumption do we make about cash?

Answer 8

assume it is surplus and not related to operations

Question 9

what balance sheet figures do we include?

Answer 9

every A and L

Question 10

how to calculate cash operating profit?

Answer 10

net profit - tax/int - non-cash/non-op

or EBIT - non-cash/non-op

Question 11

how to calculate NWC?

Answer 11

movement from year to year

increase = outflow of cash

Question 12

how to calculate CAPEX?

Answer 12

PPE CA in a t-account and look for additions

Question 13

how to calculate terminal value?

Answer 13

Y3 through formula [(CF(1+g) / (WACC - g)] then PV to present ^-3

Question 14

how to calculate surplus cash?

Answer 14

CCE less NWC cash

Question 15

how to calculate property?

Answer 15

annual rent income (less taxes and rates) / required return

Question 16

how to calculate non-redeemable debt?

Answer 16

PMT / interest rate

Question 17

how to calculate redeemable debt?

Answer 17

PVA calculation

Question 18

how to calculate equity?

Answer 18

• share price x no of shares
• D1 / (k-g)
• NAV x market-book ratio
• P/E ratio

Question 19

what is NAV?

Answer 19

TA - TL / total shares

Question 20

how to calculate tax paid?

Answer 20

tax owed
= (EBIT + depr - W&T) x 0.27
= EBIT * 0.27 less d/t movement

Question 21

what is P/E multiple valuation?

Answer 21

earnings-based valuation

Question 22

what is market capitalization?

Answer 22

MV of listed shares

= share price x no. of shares

Question 23

what does P/E ratio show us?

Answer 23

what market is willing to pay based on EPS

share price / EPS

Question 24

what if PE is low?

Answer 24

the company has low value

Question 25

what is earnings yield?

Answer 25

EPS / share price = rate of return as % of share value

Question 26

what is EPS?

Answer 26

net profit / number of shares

Question 27

steps for EBV?

Answer 27

1) maintainable earnings
2) P/E, EY, Rf
3) calculate value (remove NCI if necessary)
4) calculate holding (+- discount / premium)

Question 28

how do we get maintainable earnings?

Answer 28

EBIT / operating profit
+- any abnormal amounts, expenses, once-off items
Adjusted earnings
+- any costs/inc expected going forward (int)
+- differences in market
Maintainable earnings

Question 29

how do we adjust P/E ratio?

Answer 29

+ for positive factors

- for negative factors

Question 30

how do we adjust EY or Rf?

Answer 30

• for positive factors

+ for negative factors