Business Valuation

Question 1

What is a key thing to bear in mind with all business valuation questions?

Answer 1

Listed comparing to non listed? DISCOUNT FOR NON-MARKETABILITY

Question 2

What does debt do to enterprise value?

Answer 2

Increases enterprise value (despite being a liability)

Question 3

What does SVA give you?

Answer 3

ENTERPRISE VALUE
So deal with debt, investments (cash etc.) as well

Question 4

Evaluation of asset based valuation

Answer 4

‘Historic’
‘Balance sheet-based’
Ignores intangibles
Useful if breaking up company (otherwise probably not)

Question 5

Highest and lowest to pay for a company

Answer 5

NOT (necessarily) NRV vs Replacement:

a. Look at the valuation methods you’ve already been asked to look at
b. pick the ones that are relevant to the circumstances (discard the ones that aren’t) (and give reasons)
c. -> the range is just the highest and lowest useful valuations

Question 6

Valuation method useful for valuing profitable business?

Answer 6

Earnings based (‘forward-looking’)

Question 7

What valuation method becomes less useful when buying 100% of target company?

Answer 7

Dividend based better for minority interest)

Question 8

Limitations of dividend yield valuation

Answer 8

1. Company might have higher/lower yield than that used to value
2. Ignores growth

Question 9

Ways management might fund an MBO

Answer 9

1. Management’s own equity
2. Venture capital (VC equity or VC debt)
3. Bank loan

Question 10

Asking for asset based valuation?

Answer 10

They want BOTH historic and revalued