Volkswagen AG: Valuation in 2009 ( A) Flashcards
How do you value a company using flow-to-equity?
Suppose Company ABC has the following financial data for the year:
Operating Income (EBIT): $2,000,000
Tax Rate: 30%
Depreciation & Amortization: $300,000
Capital Expenditures: $500,000
Change in Net Working Capital: $100,000 (increase)
Change in Debt: $200,000 (positive value indicates new borrowing)
Interest Expense: $150,000
FCFE = FCFF + Change in Debt - Interest Expense * (1 - Tax Rate)
FCFF = (EBIT * (1 - Tax Rate)) + Depreciation & Amortization - Capital Expenditures - Change in Net Working Capital
If there is an increase in NWC (ΔNWC is positive), it would mean that the company has invested more cash in its working capital, which could reduce its FCF.
How do you find the growth rate of a firm?
Return on capital x Net reinvestment rate.
Return on capital ?
EBIT ( T-1) / Operating assets
What is net reinvestment rate?
Change in NWC = NWC at the end of the current period - NWC at the end of the previous period
NWC = Current Assets - Current Liabilities ( , which are short-term assets and liabilities expected to be converted to cash or settled within one year.)
How do you find change in NFA ( net fixed assets) ?
Cape
What are the 3 main requirements for a comps based valuation?
How do you work out PVGO? and what does it mean?
PVGO = Stock Price - (Earnings per Share / Cost of Equity).
In other words, PVGO is the amount that an investor would be willing to pay for a company’s future growth prospects.
What is the flaw of using average P/E?
The result of one company can skew the average heavily. Therefore the median should be used
How should we pick comparable firms for P/E analysis or EV/EBITDA?
- Same industry
- Similar D/E ratio
- Similar products.
What does it mean if P/E is greater than competitors?
The stock might be overpriced.
