VALUATION

Question 1

STEPS COMPS

Answer 1

1. SELECT UNIVERSE OF COMPARABLE COMPANIES
2. LOCATE THE NECESSARY FINANCIAL INFORMATION
3. SPREAD FINANCIAL STATISTICS AND RATIOS, AND CAPTURE MULTIPLES
4. BENCHMARK COMPARABLE COMPANIES
5. DETERMINE VALUATION

Question 2

PROS COMPS

Answer 2

• Captures Market sentiment
• Relativity
• Easy tu use and compute

Question 3

CONS COMPS

Answer 3

• Market now always rational
• Difficult to find companies
• Intrinsic value of the company may be ignored

Question 4

Precedent transaction analysis

Answer 4

Same steps as comps but with precedent transactions.

We need to differentiate strategic and financial values

Question 5

PROS Prec. tran.

Answer 5

• Captures Market sentiment
• Relativity
• Easy tu use and compute

Question 6

CONS Prec. tran.

Answer 6

• Market info may be skewed based on investor expectations or M&A environment
• TIME- old transactions may not be representatives
• Existence and information
• Acquirers valuation may be wrong

Question 7

DCF Analysis STEPS

Answer 7

1. PROJECT 3 FINANCIAL STATEMENTS
2. PROJECT FCF
3. CALCULATE WCC
4. CALCULATE TERMINE VALUE
5. PERFORM VALUATION

Question 8

Calculate termine value

Answer 8

2 ways:

1. Exit multiple method
2. Gordon growth model

Question 9

FCF formula

Answer 9

EBIT
-Taxes
=EBIAT
\+ Depreciation & Amortization
-CaPex
-Increase/Decrease in Net Working Capital
= FCF

Question 10

PROS DCF

Answer 10

• Takes into account generated CF generating power
• Unaffected by market information
• Flexible: Allows multiple scenarios

Question 11

CONS DCF

Answer 11

• Highly dependent on assumptions
• Terminal value can account the majority of the valuation
• Depends on WACC- assumed constant