Valuations Flashcards
What valuations methods are there?
1 dividend growth model
2 price multiples
* PE multiple
* EBIT/ EBITDA multiple
3 free cash flow
4 net asset value
How does one do the dividend growth model valuation?
How does one do the PE multiple valuation?
Step 1, take the multiple of a similar functioning company
Step 2, discuss factors affecting your multiple, increase and decrease it accordingly
Step 3, calculate your maintainable earnings, starting with proof before tax. (This means you need to remove all the items that are not maintainable)
What are the factors that increase and decrease the PE multiple?
How does one do a valuation using the EBIT/ EBITDA multiple?
Step 1, calculate the multiple (total firm market value (D + E) / EBITDA)
Step 2, calculate the value of the firm, (maintainable EBITDA x EBITDA multiple)
How does one do a valuation using the free cash flow method?
Step 1, calculate the FCF for the next couple of years as possible ( FCF = EBIT x 9(1-T) + depreciation - (Capex- depreciation) - changes in working capital
* Capex = changes in non current assets
Step 2, calculate the terminal value on the last cash flow((Final cash flow x ( 1 + % growth rate)) / (WACC% - growth rate%)), (this is the present value of all the future cash flows to the days of the final known Cash flow)
Step 3, present value of the cash flows but add the terminal value to the final year’s cash flow (PV the amounts using the WACC), this is the value on your firm
Step 4, add market value of any non operational assets and cash, while considering the tax effects on any revaluation
Step 5, only if you want only the equity portion, remove the market value of any debt
How does one do a net asset valuation?
Step 1, take the book values on your assets and liabilities
Step 2, adjust them to their market values, while careful to consider the tax effects of revaluation
Step 3, deduct debt from assets to get the forms equity value, otherwise just use the market value of the assets for the firms value
