Valuation - Comparable Companies Flashcards
The group of comparable companies or group of “trading comps” is the?
Comparables universe
EBITDA definition
earnings before interest, taxes, depreciation and amortization
EV/EBITDA definition
Enterprise Value/EBITDA
Enterprise Value definition
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
Multiples based on enterprise value are used because they’re independent of…
capital structure and other factors unrelated to business ops (e.g., tax differences, accting policies).
Diff b/t comparables universe and intrinsic valuation?
Comparables universe will reflect current market conditions and sentiment.
5 steps to comparable companies analysis
- Select universe of comps
- Get their fin. info
- Spread key stats, ratios, trading multiples
- Benchmark the comps
- Determine valuation
“spreading” means
performing calculations in spreadsheet program
Do you start from scratch in comps analysis?
No, you ask if others have relevant comps from recent deals.
Where do you get companies’ fin info? 4 sources (all avail on bloomberg)
- SEC filings
- consensus research estimates
- equity research reports
- press releases
Before you calculate trading multiples, you need to calculate 3 things
- LTM financial stats
- calendarization of financials
- adjustments for non-recurring items
Laying out stats and ratios for comp companies is called?
benchmarking
How do you calculate a target’s price range once you’re done benchmarking?
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.
Equity value means?
Market cap
BV of asset and calculation
The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation.
Net asset value of company?
The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.
In the U.K., book value is known as?”net asset value.”
“net asset value.”
For a target with no clear, publicly traded comps, you look at?
Companies outside the target’s core sector that share business and financial characteristics on some fundamental level.
For private companies, where do you look for valuations OUTSIDE an auction process?
Corporate websites, sector research reports, news runs, trade journals.
For private companies, where do you look for valuations INSIDE an auction process?
You’re given detailed business and financial information on target.
What are the 5 factors in the business profile of the target?
- sector
- products and services
- customers and end markets
- distribution channels
- geographfy
What are the 5 factors in the financial profile of the target?
- size
- profitability
- growth profile
- ROI
- credit profile
a target’s “sector” refers to? 5 sectors are?
industry or markets in which company operates (e.g., consumer products, financials, healthcare, industrials and tech)
