Valuation Overviews

Question 1

What is the famous Warren Buffet quote in regards to price and value?

Answer 1

• Price is what you pay
• Value is what you get

Question 2

How do you value a company?

Answer 2

Valuation is a process of using insight from different relevant valuation methodologies to determine the value of the company.

Question 3

What are some major valuation techniques?

Answer 3

1. Public Comparable Analysis
2. Acquisition Comparable Analysis
3. Discounted Cash Flow Analysis
4. Merger Consequences Analysis
5. Leveraged Buyout Analysis
6. Liquidation Analysis
7. Replacement Cost Analysis

Question 4

Public Comparable Analysis identifies value relative to ________.

Answer 4

Public Comparable Analysis identifies value relative to peers.

Question 5

Acquisition Comparable Analysis identifies value relative to ________ _________.

Answer 5

Precedent Transactions

Question 6

Discounted Cash Flow Analysis measures the _______ value of a company.

Answer 6

Intrinsic

Question 7

What is the question you are trying to answer for an LBO Analysis or Merger Model Analysis?

Answer 7

How much could the buyer affoard to pay?

Question 8

What is a Merger Model Analysis looking at?

Answer 8

How much a strategic buyer could pay.

Question 9

What is a Leveraged Buyout Analysis looking at?

Answer 9

How much a financial buyer could pay

Question 10

Who can affoard to pay more: A strategic buyer or a financial buyer

Answer 10

Usually a strategic buyer can pay more because they will realize synergies which will offset higher purchase price.

Question 11

Leveraged Buyout Analysis is considered your _______ valuation.

Answer 11

Floor

Question 12

How could the 52 week high/low be used to valuate a company?

Answer 12

If an offer price is between high/low, it might not be a competitive offer from point of view of ownership.

Question 13

What does trading in the middle of the range for a public comparable analysis imply?

Answer 13

The company is appropriately valued.

Question 14

Why do precedent transactions valuation generally imply a higher valuation?

Answer 14

Control Premium or Synergy Premium for M&A acquisition.

Question 15

What are the two types of DCF you can do?

Answer 15

• Standalone DCF
• DCF w/ Synergies (assumes acquisition by a strategic buyer)

Question 16

What is the purpose of a football field chart?

Answer 16

A method to summarize and communicate the numerous valuations for a company.

Question 17

What are the two questions you must ask when valuing a company?

Answer 17

1. What is the company worth (Big 3)
2. How much is someone willing to pay? (M+A, LBO)

Question 18

What type of analysis would you do to calculate a company’s price for an IPO?

Answer 18

Comparable Company Analysis

Question 19

What is Equity Value?

Answer 19

Value of shareholders’ interest

Question 20

What does market capitalization refer to:

(Equity Value or Enterprise Value)

Answer 20

Equity Value

Question 21

What does firm value refer to:

(Equity Value or Enterprise Value)

Answer 21

Enterprise Value

Question 22

How do you calculate Enterprise Value?

Answer 22

EV = Equity + Det + Preferred Stock + Minority Interest

Question 23

How does public comparable analysis work?

Answer 23

Determining value via comparison with similar companies

Question 24

What is a multiple?

Answer 24

A value relationship with Valuation in numerator and Value Driver in denominator.

Question 25

[Comparable Companies Analysis]

How do you select your comparable companies universe?

Answer 25

• Select Comparable in terms of:
  
  • Operations
    
    • Products
    • Geography
    • Customer
  • Financial Aspects
    
    • Size
    • Growth (sales, EBITDA, EPS)
    • Financial Risk (Leverage)
    • Profitability (Margins, Returns)

Question 26

[Comparable Company Analysis]

How do you assess companies with multiple divisions?

Answer 26

Valuate each division separately.