Business Valuations

Question 1

Asset based valuations

Answer 1

NVR & Replacement cost

Question 2

Asset based - NRV +/-

Answer 2

Useful minimum price
Assets more certain than income

Hard to estimate NRV
Ignores goodwill
Have to estimate redundancy and liquidator costs

Question 3

Replacement cost positives and negatives

Answer 3

Useful to determine the maximum price to pay for a controlling interest

Setting up a replacement business might not be possible

Question 4

Price earnings (P/E ratio)

Answer 4

Value = P/E x Earnings

Or

Value = Earnings / Earnings yield

Question 5

Calculating P/E ratio

Answer 5

May be given in Q!
Otherwise:

P/E = Share price / Earnings per share

Question 6

P/E ratio pros & cons

Answer 6

Values is the company based on current market valuations of similar companies

Need a comparable company his PE we can use
Valuation based on historic EPS
Earnings may change

Question 7

EVM

Answer 7

Value = EBITDA x EVM

If you have to calculate then EVM = Enterprise value/EBITDA

Question 8

Enterprise value

Answer 8

Used to calculate EVM,

EV = MV of debt, equity, prefs less liquid assets

Question 9

Dividend yield

Answer 9

Value = Dividend / Dividend yield

Where the yield is the divi per share over the share price