7) Valuations Flashcards
what is the value of something?
the PV of all its future cash flows
what is FV in perpetuity?
PV / i
why do we value op and non-op items separately?
as they have different risk and different returns
what do we assume during the planning period?
cash flows can be predicted and we include all significant stages we expect to happen
what do we assume in the post-planning period?
cash flows will continue at a steady rate perpetually
why do we use EBIT in our calculation?
it is accurate as to what was actually paid; it removes interest (already in WACC) and non-cash, non-operating items
what is net working capital?
inventory + accs receivable + operating cash - accs payable
what assumption do we make about cash?
assume it is surplus and not related to operations
what balance sheet figures do we include?
every A and L
how to calculate cash operating profit?
net profit - tax/int - non-cash/non-op
or EBIT - non-cash/non-op
how to calculate NWC?
movement from year to year
increase = outflow of cash
how to calculate CAPEX?
PPE CA in a t-account and look for additions
how to calculate terminal value?
Y3 through formula [(CF(1+g) / (WACC - g)] then PV to present ^-3
how to calculate surplus cash?
CCE less NWC cash
how to calculate property?
annual rent income (less taxes and rates) / required return
how to calculate non-redeemable debt?
PMT / interest rate
how to calculate redeemable debt?
PVA calculation
how to calculate equity?
- share price x no of shares
- D1 / (k-g)
- NAV x market-book ratio
- P/E ratio
what is NAV?
TA - TL / total shares
how to calculate tax paid?
tax owed
= (EBIT + depr - W&T) x 0.27
= EBIT * 0.27 less d/t movement
what is P/E multiple valuation?
earnings-based valuation
what is market capitalization?
MV of listed shares
= share price x no. of shares
what does P/E ratio show us?
what market is willing to pay based on EPS
share price / EPS
what if PE is low?
the company has low value
what is earnings yield?
EPS / share price = rate of return as % of share value
what is EPS?
net profit / number of shares
steps for EBV?
1) maintainable earnings
2) P/E, EY, Rf
3) calculate value (remove NCI if necessary)
4) calculate holding (+- discount / premium)
how do we get maintainable earnings?
EBIT / operating profit
+- any abnormal amounts, expenses, once-off items
Adjusted earnings
+- any costs/inc expected going forward (int)
+- differences in market
Maintainable earnings
how do we adjust P/E ratio?
+ for positive factors
- for negative factors
how do we adjust EY or Rf?
- for positive factors
+ for negative factors
