Valuations Flashcards
What are strengths and weaknesses of Comparables?
Strengths Quick to use Simple to understand Commonly used in industry Market Based
Weaknesses Private Company comparables may be difficult to evaluate If public company comparables are used, then need to adjust resulting valuation to take into account private equity comapny’s liquidity.
What’s an illiquidity discount?
A discount given the valuation of a privately held company, typically 25-30%.
What is a control premium?
A premium paid by a potential buyer to gain a controlling interest in a company.
What is MVEquity?
Market Value of Equity or (MV) = EV-Net Debt-Peferred Equity-Minorty Interest
What is Net Debt?
Net Debt = Total Debt - Cash and Cash Equivalents
What is Enterprise Value?
When no preferred equity or minitory interestEV = MV(equity) + Net Debt
What is Transaction Equity Value?
Transaction Equity Value = Offer price (per share) X number of dilluted shares outstanding
What is Transaction Enterprice Value?
Transaction Enterprise Value = Transaction Value + Net Debt
What are five valuation multiples?
P/E Transaction Value/EBITDA or Enterprise Value (EV)/EBITDA Market Value/Book Value of Equity EV/Member EV/Sales
What are the strengths and weaknesses of NPV?
Strength
Less inlfuenced by externailites than other valuation methods
Enables valuation of separate biz units subsidiares or assets
Forward-looking: it is useful for M&A
Can incorporate expected changes to company’s long-term strategic plan
Growth Rates Operating Margins
Weaknesses
Cash Flows may be difficult to estimate
Comparable Beta and Capital structure can be difficult to find and evaluate
WACC assumes a constant capital structure
WACC assumes a constant effective tax rate
Distant, uncertain cash flows (outflows & inflows) are very sensitive to discount and terminal growth rate assumptions
What are the components of NPV (DCF)?
Unlevered cash flows
Weighted Average Cost of Capital (WACC)
Terminal Value (TV)
