Comps
Are comps an intrinsic or extrinsic form of valuation?
extrinsic
Are precedents an intrinsic or extrinsic form of valuation?
extrinsic
What is the formula for Enterprise Value
Equity value + Pref Stock + Minority Interest + Net Debt
also can say Equity Value + Net Debt
What will likely have a greater comps EV / EBITDA multiple - Tech or Utilities
Tech
what are some forms of intrinsic valuation? how do they differ from extrinsic?
DCF and LBO are purely based on analyst assumptions
Walk me through the steps of creating comps
Select the universe
Locate financial information
Spread key statistics, ratios, and trading multiples
Benchmark
Determine valuation
Walk me through the steps of creating precedents
Select the universe
Locate financial information
Spread key statistics, ratios, and trading multiples
Benchmark
Determine valuation
what are a few common multiples
EV / EBITDA, EV / EBIT, EV / Sales, P/E
What will likely have a greater D/E ratio - REITs or Consumer Services
REITs
What would you do when creating market valuation for a private company
a. discount
b. consider synergies
c. grow at 3% in perpetuity
d. nothing because its just a company
A.
How do you select a universe?
consider business and financial criteria/profile
What mainly differentiates precedents from comps
control premium
When would I use EV instead of Equity Value
Attributable to both debt and equity
What are important market factors to consider when searching for universe
business profile, financial profile, and relevancy
Pros and cons of Comps and Precedents
Pros:
market based
relative
quick and convenient
current
Cons:
market based
absence of close comparables
possible disconnect from cash flow
company-specific issues
Where will you locate IS, BS, and CFS data
BamSec // 10k, 10q, 8k
Why are precedents important
Shows you what the market extrinsically values your business if you were to sell. This is also relative
What is the formula for UFCF & LFCF, and what would you determine for each - enterprise value or equity value
UFCF = NOPAT + D&A - Capex - positive changes in NWC == Enterprise Value
LFCF = Net Income + D&A - Capex - positive changes in NWC - mand debt repayments == Equity Value
Will your valuation stay the same within the span of a week?
Depends, traditionally you provide a range so it should but drastic noise can move value
It may serve as a relative approximation but depends on many factors. For instance, if you wanted to sell your business now but the process takes 2 years. Then the market will change and so will your premium or extrinsic value. Your valuation may only serve meaningful if the environment is the exact same
In output would you show a single number or range
range
This type of multiple is most common in precedent transactions analysis because it normalizes for differences in capital structures
EV/EBITDA
LBO (floor valuation), Comps, Precedents (premium), DCF can go either way as its based on your assumptions
What are some market factors that would change valuation output?
1. Can you use private companies in your comps? 2. Can you use comps for a private company?
1. not recommended
2. yes