Valuation - Comparable Companies

Question 1

The group of comparable companies or group of “trading comps” is the?

Answer 1

Comparables universe

Question 2

EBITDA definition

Answer 2

earnings before interest, taxes, depreciation and amortization

Question 3

EV/EBITDA definition

Answer 3

Enterprise Value/EBITDA

Question 4

Enterprise Value definition

Answer 4

Think of enterprise value as the theoretical takeover price. Enterprise value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents

Question 5

Multiples based on enterprise value are used because they’re independent of…

Answer 5

capital structure and other factors unrelated to business ops (e.g., tax differences, accting policies).

Question 6

Diff b/t comparables universe and intrinsic valuation?

Answer 6

Comparables universe will reflect current market conditions and sentiment.

Question 7

5 steps to comparable companies analysis

Answer 7

1. Select universe of comps
2. Get their fin. info
3. Spread key stats, ratios, trading multiples
4. Benchmark the comps
5. Determine valuation

Question 8

“spreading” means

Answer 8

performing calculations in spreadsheet program

Question 9

Do you start from scratch in comps analysis?

Answer 9

No, you ask if others have relevant comps from recent deals.

Question 10

Where do you get companies’ fin info? 4 sources (all avail on bloomberg)

Answer 10

1. SEC filings
2. consensus research estimates
3. equity research reports
4. press releases

Question 11

Before you calculate trading multiples, you need to calculate 3 things

Answer 11

1. LTM financial stats
2. calendarization of financials
3. adjustments for non-recurring items

Question 12

Laying out stats and ratios for comp companies is called?

Answer 12

benchmarking

Question 13

How do you calculate a target’s price range once you’re done benchmarking?

Answer 13

Apply the means and medians for EV/EBITDA for the comps to the target. Even if you benchmark 5-10 companies, only rely on the multiples of the closest comps. This is art, not science – consult with senior people.

Question 14

Equity value means?

Answer 14

Market cap

Question 15

BV of asset and calculation

Answer 15

The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation.

Question 16

Net asset value of company?

Answer 16

The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.

Question 17

In the U.K., book value is known as?”net asset value.”

Answer 17

“net asset value.”

Question 18

For a target with no clear, publicly traded comps, you look at?

Answer 18

Companies outside the target’s core sector that share business and financial characteristics on some fundamental level.

Question 19

For private companies, where do you look for valuations OUTSIDE an auction process?

Answer 19

Corporate websites, sector research reports, news runs, trade journals.

Question 20

For private companies, where do you look for valuations INSIDE an auction process?

Answer 20

You’re given detailed business and financial information on target.

Question 21

What are the 5 factors in the business profile of the target?

Answer 21

1. sector
2. products and services
3. customers and end markets
4. distribution channels
5. geographfy

Question 22

What are the 5 factors in the financial profile of the target?

Answer 22

1. size
2. profitability
3. growth profile
4. ROI
5. credit profile

Question 23

a target’s “sector” refers to? 5 sectors are?

Answer 23

industry or markets in which company operates (e.g., consumer products, financials, healthcare, industrials and tech)