Lecture 11 - Evaluation and Valuation Flashcards
What is evaluation?
Considers all aspects of a business excluding its monetary value, can be used to determine the validity of a business plan or a revenue model
What is valuation?
Calculation of the monetary worth of a business or an asset, can be used to support an investment decision
How does classification help?
Provides a basis for:
creating and applying relevant measures of performance
Comparison of business plans, strategies and structures
competitor analysis
What does reward require?
Examination of:
Market opportunity according to addressable, accessible, value and contestable markets
Drivers of demand
Acquisition potential
What is the addressable market?
The total pool of customers (patients) who could possibly benefit from a product
What is the accessible market?
The pool of customers (patients) who can pay for a product (afford), or be reimbursed
What is the value market?
The market defined by sales actually achieved
What is the contestable market?
The pool of customers (patients) who have, directly or indirectly, the ability to switch between existing and new products
What is contestability determined by?
- number of existing products or services
- Entrenchment of existing products and brands
- Degree of benefits of newer products
- number and size of existing firms
- Entrenchment of industrial base (status quo)
- Degree of learning required
- Resistance of opinion followers
- Proximity of displacement or enabling technologies
- Queue factors
What is a Price/Earnings Ratio?
The ratio of company’s share price to its earnings (net profit after tax) per share, and it is equivalent to the capitalisation of a company (number of shares on issue multiplied by its share price) divided by its net profit after tax
What does the price/earnings ratio describe?
How the years of earnings it would take to cover the share price (to pay it back) eg. PE of 30 means 30 years
High PEs usually signal higher sales growth, shorter payback period. Useful for comparing a company with its peers
What is a Price/ Sales Ratio?
The ratio of a company’s share price to its sales per share, and is equivalent to the capitalisation of a company. Used to compare a company with traded shares with any other listed company anywhere in the world
