Advanced Valuation Nuances Flashcards
What’s the purpose of “calendarization”? How do you use it in a valuation?
Because different companies have different fiscal years.
- always need to look at the same calendar period when you create a set of public comps.
Let’s say that you need to adjust a July 1 – June 30 fiscal year to make it end on December 31 instead.
In this scenario, you’d take the July 1 – June 30 period, add the financials from the June 30 – December 31 period this year, and then subtract the financials from the June 30 – December 31 period the previous year
Does calendarization apply to both Public Comps and Precedent Transactions?
Mostly to public comps, because there’s a high chance that fiscal years will end on different dates with a big enough set of companies.
However, do calendar use for Precedent Transactions as well because you normally look at the TTM period for each deal.
I’m looking at financial data for a public company comparable, and it’s April (Q2) right now. Walk me through how you would “calendarize” this company’s financial statements to show the Trailing Twelve Months as opposed to just the last Fiscal Year.
TTM = most recent fiscal year + new partial period - old partial period
we would take the company’s Q1 (January 1 – March 31 of this year ) numbers, add the most recent fiscal year’s (January 1 – December 31 of last year) numbers, and then subtract the previous year’s Q1 numbers (January 1 – March 31 of last year).
you’re looking at a set of Public Comps with fiscal years ending on March 31, June 30, and December 31. The company you’re analyzing has a fiscal year that ends on June 30. How would you calendarize the financials for these companies?
- march: add march 31 - jun 30, minus the march 31 - jun 30 from the year before.
- December: add jan 1 - Jun 30, minus last year’s jan 1 - Jun 30
You’re analyzing the financial statements of a Public Comp, and you see Income Statement line items for Restructuring Expenses and an Asset Disposal. Should you add these back when calculating EBITDA?
Trick:
1. Should always take these charges from CFS if you can
2. Only add them back if they’re truly non-recurring charges.
How do non-recurring charges typically affect valuation multiples?
Increase them, as they tend to reduce EBIT, EBITDA and EPS metrics
We’re valuing a company’s 30% interest in another company – in other words, an Investment in Equity Interest or Associate Company.
We could just multiply 30% by that company’s value, but what other adjustments might we make?
Normally, you’ll apply some type of liquidity discount, assume stake is 20% +- than book value because company valuing now doesn’t control this other company.
Also may value by assuming that they get sold off, so apply company’s tax rate and calculate after-tax proceeds.
I have a set of public company comparables and need to get the projections from equity research. How do I select which report to use?
- Pick the report with the most detailed information
- Pick the report with numbers in the middle of the range.
I have a set of precedent transactions but I’m missing information like EBITDA for a lot of the companies, since they were private. How can I find it if it’s not available via public sources?
- Search online and see if you can find press releases or articles in financial press with numbers
- If not, look into equity research for the buyer around the time of the transaction and see if any of the analysts estimate the seller’s numbers
- Look at online sources like capital IQ and Factset and see if any of them disclose numbers or give estimates for the details.
You’re analyzing a transaction where the buyer acquired 80% of the seller for $500 million. The seller’s revenue was $300 million and its EBITDA was $100 million. It also had $50 million in cash and $100 million in debt.
What were the revenue and EBITDA multiples for this deal?
EV = 500 million/ 80% = 625 million
Enterprise value = 625 - 50 + 100 = 675 million
Revenue multiple is 675/300 = 2.3x
EBITDA multiple is 675/100 = 6.75x
How far back and forward do we usually go for public company comparable and precedent transaction multiples?
Usually look at the TTM period for both sets, and then you look forward either 1/2 years.
I have one company with a 40% EBITDA margin trading at 8x EBITDA, and another company with a 10% EBITDA margin trading at 16x EBITDA. What’s the problem with comparing these two valuations directly?
Just can be misleading as the 40% margin company will usually have a lower multiple, whether or not it’s actual value is lower.
