Develop Your Intuition about Value Multiples By Serena Morones, CPA, ABV, ASA, CFE
|
|
- Wilfred Adam Chapman
- 7 years ago
- Views:
Transcription
1 By Serena Morones, CPA, ABV, ASA, CFE Introduction Do you have a reasonable sense about what multiple of EBITDA is appropriate to value your client s business? Or do you toss around standard rules of thumb without knowing what s actually appropriate? While you may not be a business appraiser, I believe it s possible for attorneys to develop sensible intuition about what valuation multiples serve as a reasonable estimate for the value of a business. This article will explore some of the basic factors that drive two common valuation multiples; a multiple of EBITDA and a multiple of revenues. Exploring these factors will help attorneys gain an intuitive understanding of what multiples may be appropriate for various business types. As a business appraiser, I must issue a strong caveat: value multiples are not the only consideration when determining value. Other important factors will be mentioned later in this article. But value multiples are one of the most common ways that business owners and their advisors speak about value, and therefore attorneys would be well served to develop intuition about what drives them. Two Common Valuation Multiples Two of the most common valuation multiples spoken about by business owners are a Multiple of EBITDA and a Multiple of Revenues. There are certainly many other valuation multiples used by business appraisers, and rules of thumb used within certain industries, but these two multiples seem to transcend industries and dominate business transaction language. Here are some basic definitions necessary to begin our discussion: Valuation Multiple: A valuation multiple is a simple multiplication formula that estimates the total capital value of a company. The formula is expressed as a number multiplied by a financial factor of the company, such as "2 times annual revenue," or "7 times EBITDA." EBITDA: Earnings before interest, taxes, depreciation, and amortization, stated on a full year basis. A method to calculate EBITDA is by starting with pre-tax profit and adding depreciation expense, amortization expense and interest expense. Revenues: Net annual revenues of a company. EBITDA is probably the most common measure of earnings used in the financial industry. Any legal or financial advisor should fully understand the formula and essential meaning of EBITDA. EBITDA presents a pure measure of the current earning capacity of a company, before 625 SW Broadway, Suite 200 Portland, OR P F moronesanalytics.com
2 consideration of how the company is financed (interest), how the company might be taxed (C- Corporation or S-Corporation) or what capital improvements or intangible asset investments might be underway that consume cash (depreciation and amortization). Drivers of Multiples Consider this riddle: A client who owns a high growth technology company attracted an acquisition multiple of 10x EBITDA. Another client, who owns a 5th generation family farming operation insists that his business is worth 10x EBITDA. Is your farmer right? How can the farm be worth the same multiple of EBITDA as the technology company, when they are so drastically different? We can understand the answer to this riddle if we understand the driving forces behind the multiples. Within a multiple of EBITDA, there are two primary factors that cause variability of the multiplier: risk and growth. Within a multiple of revenues, there are three primary drivers of variability: risk, growth and profitability. Not to be misunderstood, these are not the only components of valuation multiples. In reality, a valuation multiple is comprised of other factors, that when added together, equal an investor s expected return. These other components include inflation, public market levels of risk, volatility, and industry levels of debt in the capital structure. But in this author s opinion, one can develop common sense about valuation multiples when one understands the key factors that drive the valuation multiple upward or downward, and I believe those key factors are risk and growth for a multiple of EBITDA, and risk, growth and profitability for a multiple of revenue. Valuation Riddle: A farming operation has a valuation multiple of 10x EBITDA. A high growth technology company also has a valuation multiple of 10x EBITDA. How can these businesses have the same valuation multiple when they seem totally different? Risk The largest factor driving a multiple of EBITDA is risk. Risk, in an investment context, describes the likelihood that expected cash flows will be received. The higher the risk, the lower the likelihood that cash flows will be received as predicted. The lower the risk, the higher the likelihood that actual future cash flows will equal expected future cash flows. Investment theory dictates that investors require a higher reward for higher risk, and require a lower reward for lower risk. Therefore, the level of risk drives the percent of annual return (or reward) that the investor requires. A simple example is that if I invest money into a risk free savings account, I may earn 1% per year of interest in today's interest rate environment. Whereas if I invest money into a venture capital fund, I expect an annual return of 30-50% because of the high risk nature of the investment. The expected total rate of return is also called a "discount rate" that an appraiser uses to calculate today s value of all cash flows that will be received in the future (present value). A valuation multiple is short hand way of expressing a required rate of return or a discount rate. A valuation multiple is equal to the mathematical inverse of the discount rate, minus growth.
3 Risk has an inverse correlation to a value multiple. As risk increases, the valuation multiple decreases, because an investor is willing to pay less for the investment in order to ensure a higher ultimate return. As risk decreases, the valuation multiple increases, because the investor is willing to take a lower return for less risk. RISK Multiple Growth: The second key driver of a multiple of EBITDA is growth. An investor asks the question: How much is this cash flow stream going to grow year by year into the future? Growth has a direct correlation to the multiple. The higher the expected growth, the higher the price an investor is willing to pay. The lower the growth, the lower the price the investor is willing to pay. The following table illustrates multiples of EBITDA, showing the implied discount rate and growth. The discount rate reflects the level of risk; the higher the discount rate, the higher the risk and the lower the discount rate, the lower the risk. Growth Multiple Example of EBITDA Multiples Showing Risk and Growth The calculations in the above table assume the following: 1. EBITDA is equal to one dollar; 2. Total taxes are equal to 35%; and Low Risk Low Risk High Risk High Risk Low Growth High Growth Low Growth High Growth Discount Rate 10% 10% 20% 20% Minus: Growth 2% 5% 2% 5% Cash Flow Cap Rate 8% 5% 18% 15% EBITDA $1.00 $1.00 $1.00 $1.00 Less: Taxes 35% 35% 35% 35% Cash Flow $0.65 $0.65 $0.65 $0.65 Divided: Cap Rate 8% 5% 18% 15% Value $8.13 $13.00 $3.61 $4.33 Multiple of EBITDA Depreciation and amortization equal the expected cash flow used for capital expenditures.
4 Notice that the discount rate, which quantifies risk, has a much larger impact on the multiple than growth. Also notice that the assumed growth rate is rather low, even in the high growth scenario. This is because the assumed growth rate represents growth into perpetuity, or growth forever. A company is not usually expected to sustain high growth forever. Let's answer the riddle about the high growth technology company and the farming operation. The reason both companies can have the same valuation multiple is that the very high growth of the technology company drives its multiple upward, and combined with moderate risk, commands a multiple of 10x EBITDA. The very low risk of the farming operation also drives its multiple upward to a level of 10x EBITDA. Farming Very Low Risk Low Growth Growth Tech Medium Risk Very High Growth Discount Rate 8% 12% Minus: Growth 2% 6% Cash Flow Cap Rate 6% 6% EBITDA $1.00 $1.00 Less: Taxes 35% 35% Cash Flow $0.65 $0.65 Divided: Cap Rate 6% 6% Value $10.83 $10.83 Multiple of EBITDA Profitability and the Multiple of Revenue: One additional key factor drives a multiple of revenue: profitability. Profitability has a direct correlation to a multiple of revenues. A company that generates 20% profit as a percentage of sales will command a much higher multiple of revenue than a company that generates 2% profit as a percentage of sales. I testified several years ago in an arbitration case between the founding shareholder of a twenty year old financial consulting firm and his minority shareholders. The founding shareholder had developed an unswerving expectation that he could sell his firm in a retirement buy-out for one to two times annual revenues. His expectation seemed to be based on the fact that he had invested his identify into his firm for 20 years and had successfully grown it to an impressive level of revenues. While his firm had sustained strong growth rates of 10-20% during the previous ten years, the growth was obtained at the expense of profitability. The founder had added unprofitable clients for the sake of revenue growth, believing that his eventual retirement value would be a high multiple of revenues. The bottom line profitability of this firm hovered around 2% to 5% of revenues, and cash flow was often negative due to the years in which the firm was forced to make neglected capital and technology improvements. As a result of low profitability and negative cash flow, my value opinion and the ultimate arbitration award was a small fraction of annual revenues and not the 1 to 2 times revenue that
5 the founder expected. The founder's unrealistic value expectations led this company into litigation. This story illustrates that it's critical for business owners and their advisors to understand what factors drive valuation multiples, both for the sake of creating real value, and to develop realistic expectations when it comes time to exit. The following chart illustrates some hypothetical examples of multiples of revenue, based on a variety of risk, growth and profitability combinations. Grocery Store CPA Firm Restaurant Manufacturing Co. Tech. Strategic Acquisition Low Risk High Risk High Risk Medium Risk Medium Risk Low Growth Low Growth Low Growth Medium Growth High Growth Low Profit High Profit Low Profit Medium Profit High Profit Discount Rate 10% 10% 20% 15% 15% Minus: Growth 2% 2% 2% 3% 6% Cash Flow Cap Rate 8% 8% 18% 12% 9% Profitability 3% 15% 3% 10% 25% Revenues $1.00 $1.00 $1.00 $1.00 $1.00 Multiply: Profitability 3% 15% 3% 10% 25% EBITDA $0.03 $0.15 $0.03 $0.10 $0.25 Less: Taxes 35% 35% 35% 35% 35% Cash Flow $0.02 $0.10 $0.02 $0.07 $0.16 Divided: Cap Rate 8% 8% 18% 12% 9% Value $0.24 $1.22 $0.11 $0.54 $1.81 Multiple of Revenue What else drives value? Once we understand the big drivers of valuation multiples, why should a business owner ever hire an appraiser? An appraiser should be hired because there is much more that goes into a value besides a short hand application of a multiple. And often, the entire value determination is in dispute and needs a qualified professional to clearly communicate sound support for the value conclusions. Some of the additional value considerations include: Normalization adjustments, such as discretionary expenses, owner compensation, or related party lease agreements; Surplus or deficit working capital and assets; The value impact of large capital improvements ; The amount of debt financing and the company s ability to manage its leverage; The value impact of erratic cash flows; An appropriate risk assessment, given economic and industry conditions; and The allocation of value to complex capital structures, including options.
6 Conclusion Attorneys and their clients should gain a more intuitive understanding of the key factors that drive the variability of valuation multiples: risk, growth and profitability. If they do, they will be better equipped to develop rational value expectations that will actually help grow value, facilitate transactions and resolve disputes. Serena Morones, CPA, ASA, ABV, CFE conducts business valuations and damage analysis for litigation in Portland, Oregon where she leads the firm Morones Analytics, LLC. Serena has testified as an expert in complex valuation cases, and has assisted many business owners in reaching a value resolution without litigation. More information about Serena can be found at and she can be contacted at or at serena@moronesanalytics.com.
Untangling F9 terminology
Untangling F9 terminology Welcome! This is not a textbook and we are certainly not trying to replace yours! However, we do know that some students find some of the terminology used in F9 difficult to understand.
More informationPERPETUITIES NARRATIVE SCRIPT 2004 SOUTH-WESTERN, A THOMSON BUSINESS
NARRATIVE SCRIPT 2004 SOUTH-WESTERN, A THOMSON BUSINESS NARRATIVE SCRIPT: SLIDE 2 A good understanding of the time value of money is crucial for anybody who wants to deal in financial markets. It does
More informationCOMMUNICATING THE VALUATION REPORT
COMMUNICATING THE VALUATION REPORT Dave Diehl, CFA Prairie Capital Advisors, Inc. ddiehl@prairiecap.com Chieoke Moore, CPA Prairie Capital Advisors, Inc. cmoore@prairiecap.com OUTLINE OF TODAY S PRESENTATION
More informationA Basic Introduction to the Methodology Used to Determine a Discount Rate
A Basic Introduction to the Methodology Used to Determine a Discount Rate By Dubravka Tosic, Ph.D. The term discount rate is one of the most fundamental, widely used terms in finance and economics. Whether
More informationHow To Value An Asset
Business Valuation: How to Make the Most of Your Business Pooja Gardemal, CPA/ABV Vice President Business Valuation & Economic Analysis 1 About is a global consulting firm with offices in the U.S. and
More informationDETERMINING AGENCY VALUE PART 5
DETERMINING AGENCY VALUE PART 5 VALUATION METHODOLOGY (continued) By: Chuck Coyne, ASA This month we continue our discussion of how to determine an agency s value. Last month we discussed many of the typical
More informationHow help business owners prepare for the future
Take Control: How Business Valuations help business owners prepare for the future Four things you will learn from this whitepaper: This whitepaper will have special interest to people in the following
More informationFIVE REASONS YOU NEED TO KNOW WHAT YOUR BUSINESS IS WORTH WHITE PAPER
FIVE REASONS YOU NEED TO KNOW WHAT YOUR BUSINESS IS WORTH WHITE PAPER Few business owners relish spending money on something they don t need. And for most owners, hiring an expert to estimate the value
More informationChoosing HOW you fund your business is just as IMPORTANT as the business you choose.
Choosing HOW you fund your business is just as IMPORTANT as the business you choose. About Benetrends Benetrends has been helping visionary entrepreneurs successfully launch their dreams for nearly 30
More informationThe Formula. Abraham Lincoln
Finance V The Formula It helps you decide whether you re making sound investments that will grow shareholder wealth. BY CHRISTOPHER VOLK YOU CAN FOOL ALL THE PEOPLE SOME OF THE TIME, AND SOME OF THE PEOPLE
More informationHow Does Money Grow Over Time?
How Does Money Grow Over Time? Suggested Grade & Mastery Level High School all levels Suggested Time 45-50 minutes Teacher Background Interest refers to the amount you earn on the money you put to work
More informationChapter 4: Liquor Store Business Valuation
Chapter 4: Liquor Store Business Valuation In this section, we will utilize three approaches to valuing a liquor store. These approaches are the: (1) cost (asset based), (2) market, and (3) income approach.
More informationFinancial Statement Analysis!
Financial Statement Analysis! The raw data for investing Aswath Damodaran! 1! Questions we would like answered! Assets Liabilities What are the assets in place? How valuable are these assets? How risky
More informationGREENE VALUATION ADVISORS, LLC
GREENE VALUATION ADVISORS, LLC 1430 Broadway 6 th floor New York, NY 10018 TEL: 212.244.1800 FAX: 212.869.0209 e-mail: mgreene@greenevalue.com Are minority interest discounts really appropriate in valuing
More informationFuneral Home Values Myths, Methods and Strategies
323 Buttonwood Lane Tallahassee, Fl. 32317 Telephone: (850) 219 0800 Fax: (888) 565 5805 www.piercecfo.com Funeral Home Values Myths, Methods and Strategies By Robert L. Pierce Understanding funeral home
More informationChapter 5: Business Valuation (Market Approach)
Chapter 5: Business Valuation (Market Approach) This methodology values larger companies based upon the value of similar publicly traded For smaller companies, otherwise known as micro businesses (e.g.,
More information14 ARITHMETIC OF FINANCE
4 ARITHMETI OF FINANE Introduction Definitions Present Value of a Future Amount Perpetuity - Growing Perpetuity Annuities ompounding Agreement ontinuous ompounding - Lump Sum - Annuity ompounding Magic?
More information1.1 Introduction. Chapter 1: Feasibility Studies: An Overview
Chapter 1: Introduction 1.1 Introduction Every long term decision the firm makes is a capital budgeting decision whenever it changes the company s cash flows. Consider launching a new product. This involves
More informationDiscussion of Discounting in Oil and Gas Property Appraisal
Discussion of Discounting in Oil and Gas Property Appraisal Because investors prefer immediate cash returns over future cash returns, investors pay less for future cashflows; i.e., they "discount" them.
More informationHow to Maximize the Value When Selling Your Management Company
WHITE PAPER How to Maximize the Value When Selling Your Management Company INSIDE THIS REPORT Rational for Selling Management Company Valuation Acquisition Deal Structure Tips to Optimize Your Exit Value
More information# of Annual % of Busines Sales Busine Sell for % for Sale % that Sell ses sses < $500K $500K- $1M $1 - $2.5M $2.5- $10M $10-$50M >$50M 100
With Succession in Mind Increasing Your Business Value For Remodelers Gregory R. Caruso Attorney, CPA, CVA Principal, 410-507-5441 gcaruso@harvestbusiness.com 1 What We Will Cover Huge Value Swing Business
More informationBusiness Valuation Review
Business Valuation Review Do Professional Practice Buy-Sell Agreements Represent Fair Market Value? By: George B. Hawkins, ASA, CFA Deposition of Dr. Jones (A Divorcing Orthopedic Surgeon): I only paid
More informationICASL - Business School Programme
ICASL - Business School Programme Quantitative Techniques for Business (Module 3) Financial Mathematics TUTORIAL 2A This chapter deals with problems related to investing money or capital in a business
More informationFNCE 301, Financial Management H Guy Williams, 2006
Stock Valuation Stock characteristics Stocks are the other major traded security (stocks & bonds). Options are another traded security but not as big as these two. - Ownership Stockholders are the owner
More information--- FOR IMMEDIATE RELEASE ---
--- FOR IMMEDIATE RELEASE --- TIBURON RELEASES UPDATED RESEARCH REPORT ON TRENDS IN SUCCESSION PLANNING, FIRM VALUATIONS, & THE GROWING ACQUISITION MARKET FOR FINANCIAL ADVISORS -- Report addresses the
More informationKicking The Tires: Determining the Cost of Capital
- 1 - Kicking The Tires: Determining the Cost of Capital Howard E. Johnson The cost of capital refers to the discount rate or capitalization rate that is used by corporate acquirers in assessing the value
More informationViewpoint on Value. Built-in capital gains tax can be a real drag. Knowing value is half the battle
Viewpoint on Value November/December 2009 Built-in capital gains tax can be a real drag Knowing value is half the battle One price doesn t fit all Making sense of valuation discounts SBA tightens business
More informationDavis New York Venture Fund
Davis New York Venture Fund Price Is What You Pay, Value Is What You Get Over 40 Years of Reliable Investing Price Is What You Pay, Value Is What You Get Over 60 years investing in the equity markets has
More informationGrooming Your Business for Sale
PRIVATE COMPANIES Grooming Your Business for Sale Plan for the Future but Be Prepared for the Unexpected KPMG ENTERPRISE 2 Grooming Your Business for Sale Grooming Your Business for Sale Plan for the Future
More informationFAIR VALUE ACCOUNTING: VISIONARY THINKING OR OXYMORON? Aswath Damodaran
FAIR VALUE ACCOUNTING: VISIONARY THINKING OR OXYMORON? Aswath Damodaran Three big questions about fair value accounting Why fair value accounting? What is fair value? What are the first principles that
More informationHow To Calculate Financial Leverage Ratio
What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK
More informationPre- and Post Test Middle School / Grades 6-8
Pre- and Post Test Middle School / Grades 6-8 1. You can look in today s newspaper to see today s closing price of a stock. a) true b) false 2. Joey, a conservative investor with a low risk tolerance,
More informationA Piece of the Pie: Alternative Approaches to Allocating Value
A Piece of the Pie: Alternative Approaches to Allocating Value Cory Thompson, CFA, CIRA cthompson@srr.com Ryan Gandre, CFA rgandre@srr.com Introduction Enterprise value ( EV ) represents the sum of debt
More informationThe key tools of farm business analyses
10 The key tools of farm business analyses This chapter explains the benefits of accurately documenting farm assets and liabilities, as well as farm costs and income, to monitor the business performance
More informationDataline A look at current financial reporting issue
Dataline A look at current financial reporting issue No. 2013-24 November 25, 2013 What s inside: Overview... 1 At a glance... 1 The main details... 1 Contents of the Guide... 2 Concepts and application
More informationCorporate Finance & Options: MGT 891 Homework #6 Answers
Corporate Finance & Options: MGT 891 Homework #6 Answers Question 1 A. The APV rule states that the present value of the firm equals it all equity value plus the present value of the tax shield. In this
More informationI. Structural Roles. II. Ownership
I. Structural Roles Any business organization requires decisions to be made on three levels; ownership, governance and management. Although some or all of the individuals involved may be present at all
More informationLADENBURG THALMANN REPORTS FOURTH QUARTER AND FULL YEAR 2008 RESULTS. 2008 Revenues Increase 26% Due to Acquisitions
FOR IMMEDIATE RELEASE Contact: Paul Caminiti/Carrie Bloom/Jonathan Doorley Sard Verbinnen & Co 212/687-8080 LADENBURG THALMANN REPORTS FOURTH QUARTER AND FULL YEAR 2008 RESULTS 2008 Revenues Increase 26%
More informationESOP Advantage. Employee Stock Ownership Plan
ESOP Advantage Employee Stock Ownership Plan E The Smart Way to Structure Your Business The most important business move you ll ever make - could be your next one. If you are an entrepreneur launching
More informationFinancial Statement and Cash Flow Analysis
Chapter 2 Financial Statement and Cash Flow Analysis Answers to Concept Review Questions 1. What role do the FASB and SEC play with regard to GAAP? The FASB is a nongovernmental, professional standards
More informationBusiness Valuations for SBA Lending
Business Valuations for SBA Lending 2 nd Annual Lenders Conference Minnesota District SBA Office September 4, 2014 Chuck Miller, CBA cmiller@affirmedvaluation.com www.affirmedvaluation.com Appraiser s
More informationDEPOSITION QUESTIONS FOR STEVEN GARCIA
DEPOSITION QUESTIONS FOR STEVEN GARCIA When you see a box, it means that I am telling you either the direction that I want to go in or what I expect his answer to be. BACKGROUND AND QUALIFICATIONS (BIOGRAPHICAL
More informationChapter 8. Stock Valuation Process. Stock Valuation
Stock Valuation Process Chapter 8 Stock Valuation: Investors use risk and return concept to determine the worth of a security. In the valuation process: The intrinsic value of any investment equals the
More information5N PLUS INC. Condensed Interim Consolidated Financial Statements (Unaudited) For the three month periods ended March 31, 2016 and 2015 (in thousands
Condensed Interim Consolidated Financial Statements (Unaudited) (in thousands of United States dollars) Condensed Interim Consolidated Statements of Financial Position (in thousands of United States dollars)
More informationWhat's Your Business Worth? What you see isn't usually what you get - or want!
What's Your Business Worth? What you see isn't usually what you get - or want! "How much is my business worth?" and "How do I know for sure?" and "Why should I care? After all, I have no intention of selling
More informationFinancial Terms & Calculations
Financial Terms & Calculations So much about business and its management requires knowledge and information as to financial measurements. Unfortunately these key terms and ratios are often misunderstood
More information3. Time value of money. We will review some tools for discounting cash flows.
1 3. Time value of money We will review some tools for discounting cash flows. Simple interest 2 With simple interest, the amount earned each period is always the same: i = rp o where i = interest earned
More informationCHAPTER 8 INTEREST RATES AND BOND VALUATION
CHAPTER 8 INTEREST RATES AND BOND VALUATION Solutions to Questions and Problems 1. The price of a pure discount (zero coupon) bond is the present value of the par value. Remember, even though there are
More informationII. Estimating Cash Flows
II. Estimating Cash Flows DCF Valuation Aswath Damodaran 61 Steps in Cash Flow Estimation Estimate the current earnings of the firm If looking at cash flows to equity, look at earnings after interest expenses
More informationATTORNEY S REPORT Winter 2013
ATTORNEY S REPORT Winter 2013 MAKING A GRACEFUL EXIT Successtion Planning for Attorneys With a wave of baby boomer attorneys rushing toward retirement, law firm succession and exit planning is one of the
More informationBuying & Selling BUSINESS VALUATION. De-mystifying Risk and the Earnings Multiple For Both Buyers and Sellers. By Dexter W. Braff
Buying & Selling BUSINESS VALUATION De-mystifying Risk and the Earnings Multiple For Both Buyers and Sellers By Dexter W. Braff Buyers are buying. Sellers are selling. Millions of dollars are riding on
More informationTopic 7: Financial Performance
Topic 7: Financial Performance One of the most important tasks in transition planning is analyzing the financial performance of the farm operation. Too many farms move ahead making decisions regarding
More information1 Present and Future Value
Lecture 8: Asset Markets c 2009 Je rey A. Miron Outline:. Present and Future Value 2. Bonds 3. Taxes 4. Applications Present and Future Value In the discussion of the two-period model with borrowing and
More informationDo you have difficulty making purchasing decisions? Have you ever wished you could figure out how to decide more easily?
Portable Skills Handout #1 Conducting a Cost Benefit Analysis Do you have difficulty making purchasing decisions? Have you ever wished you could figure out how to decide more easily? Some decisions, such
More informationFinancial Modeling & Valuation Stuart A. Neiberg, MAcc, CPA, CFA Director HealthCare Appraisers, Inc.
Financial Modeling & Valuation Stuart A. Neiberg, MAcc, CPA, CFA Director HealthCare Appraisers, Inc. Presentation Outline Why is Financial Modeling and Valuation Important? Industry Overview and Trends
More informationA Unique and Potentially Effective Method of Capital Formation in Today s Financing Environment
Reverse Mergers A Unique and Potentially Effective Method of Capital Formation in Today s Financing Environment Prepared by MDB Capital Group LLC March 2003 Background Reverse mergers have been utilized
More informationSources of finance (Or where can we get money from?)
Sources of finance (Or where can we get money from?) Why do we need finance? 1. Setting up a business 2. Need to finance our day-to-day activities 3. Expansion 4. Research into new products 5. Special
More informationNature and Purpose of the Valuation of Business and Financial Assets
G. BUSINESS VALUATIONS 1. Nature and Purpose of the Valuation of Business and Financial Assets 2. Models for the Valuation of Shares 3. The Valuation of Debt and Other Financial Assets 4. Efficient Market
More informationA PRACTICAL GUIDE TO VENTURE CAPITAL FUNDING FOR EARLY STAGE COMPANIES
A PRACTICAL GUIDE TO VENTURE CAPITAL FUNDING FOR EARLY STAGE COMPANIES A COURTESY GUIDE PREPARED BY SWAAB ATTORNEYS 2014 Introduction to venture capital investment Venture capital is money provided by
More informationFNCE 301, Financial Management H Guy Williams, 2006
REVIEW We ve used the DCF method to find present value. We also know shortcut methods to solve these problems such as perpetuity present value = C/r. These tools allow us to value any cash flow including
More informationInvesting on hope? Small Cap and Growth Investing!
Investing on hope? Small Cap and Growth Investing! Aswath Damodaran Aswath Damodaran! 1! Who is a growth investor?! The Conventional definition: An investor who buys high price earnings ratio stocks or
More informationPretax Versus Posttax DCF in Loss and Damage Calculations. Reprinted with permissions from Business Valuation Resources, LLC
Vol. 2, No. 1, January 2015, 1 Qtr. TIMELY NEWS, ANALYSIS, AND RESOURCES FOR DEFENSIBLE VALUATIONS BUSINESS VALUATION AUSTRALIA Pretax Versus Posttax DCF in Loss and Damage Calculations By John-Henry Eversgerd
More informationChapter 011 Project Analysis and Evaluation
Multiple Choice Questions 1. Forecasting risk is defined as the: a. possibility that some proposed projects will be rejected. b. process of estimating future cash flows relative to a project. C. possibility
More informationAPPENDIX 3 TIME VALUE OF MONEY. Time Lines and Notation. The Intuitive Basis for Present Value
1 2 TIME VALUE OF MONEY APPENDIX 3 The simplest tools in finance are often the most powerful. Present value is a concept that is intuitively appealing, simple to compute, and has a wide range of applications.
More informationThe Profit WIN Numbers Jim Silverman Automotive Training Institute
The Profit WIN Numbers Jim Silverman Automotive Training Institute Today's Agenda Determine how much money you need to make Pay your bills now Have enough for later Learn how to keep score Fix your accounting
More informationMutual Fund Expense Information on Quarterly Shareholder Statements
June 2005 Mutual Fund Expense Information on Quarterly Shareholder Statements You may have noticed that beginning with your March 31 quarterly statement from AllianceBernstein, two new sections have been
More informationValuation. Transaction Consulting. Real Estate Advisory. Fixed Asset Management. On call. Valuation and related services for the Healthcare sector
Valuation Transaction Consulting Real Estate Advisory Fixed Asset Management On call. Valuation and related services for the Healthcare sector I think the reason for the interest (in healthcare) is investors
More informationCIMA F3 Course Notes. Chapter 11. Company valuations
CIMA F3 Course Notes Chapter 11 Company valuations Personal use only - not licensed for use on courses 144 1. Company valuations There are several methods of valuing the equity of a company. The simplest
More informationBUYING OUT A PARTNER: A CHECKLIST OF ISSUES TO CONSIDER
BUYING OUT A PARTNER: A CHECKLIST OF ISSUES TO CONSIDER Phil Thompson Business Lawyer, Corporate Counsel www.thompsonlaw.ca All business partnerships end eventually. If nothing else, death or retirement
More informationREAL ESTATE INVESTMENT TRUSTS (REITs)
UNDERSTANDING REAL ESTATE INVESTMENT TRUSTS (REITs) www.griffincapital.com KEY TERMS for ASSESSING REITS NET LEASE TRIPLE NET LEASE ABSOLUTE NET LEASE GAAP STRAIGHT-LINING FUNDS FROM OPERATIONS (FFO) MODIFIED
More informationINTERVIEWS - FINANCIAL MODELING
420 W. 118th Street, Room 420 New York, NY 10027 P: 212-854-4613 F: 212-854-6190 www.sipa.columbia.edu/ocs INTERVIEWS - FINANCIAL MODELING Basic valuation concepts are among the most popular technical
More informationUnit 2: Finance for Business
Unit 2: Finance for Business Level: 1 and 2 Unit type: Core Guided learning hours: 30 Assessment type: External Unit introduction All businesses have to spend money before they can make a profit, and when
More informationChapter 7. . 1. component of the convertible can be estimated as 1100-796.15 = 303.85.
Chapter 7 7-1 Income bonds do share some characteristics with preferred stock. The primary difference is that interest paid on income bonds is tax deductible while preferred dividends are not. Income bondholders
More informationCamille Kerr and Corey Rosen, National Center for Employee Ownership
Camille Kerr and Corey Rosen, National Center for Employee Ownership Companies with 1,000 or fewer employees, almost all of which are closely held, provide almost 60% of all private sector jobs in the
More informationProjecting the 3 Statements & 3-Statement Modeling Quiz Questions
Projecting the 3 Statements & 3-Statement Modeling Quiz Questions 1. Let s say that we re creating 3-statement projections for a company, and in its historical filings Depreciation & Amortization and Stock-Based
More informationInvestment valuations in private equity buyouts
By Brian Gallagher, Twin Bridge Capital Partners 11 Introduction Buyout investment math (or mathematics) is the means by which investment sponsors formally analyse the assumptions they make about the past
More informationBusiness Valuation A presentation for Manitoba Learning Match 2014. Daniel Bernard, CA, CBV
Business Valuation A presentation for Manitoba Learning Match 2014 February 11, 2014 Daniel Bernard, CA, CBV J.P. Barnabé, CA Overview When to get a Valuation Valuation Reports Basic Principles of Valuation
More informationFinancial Ratio Cheatsheet MyAccountingCourse.com PDF
Financial Ratio Cheatsheet MyAccountingCourse.com PDF Table of contents Liquidity Ratios Solvency Ratios Efficiency Ratios Profitability Ratios Market Prospect Ratios Coverage Ratios CPA Exam Ratios to
More informationBuy-Sell Agreements: The Bad, the Ugly, and How the Good Could Have Been
Buy-Sell Agreements: The Bad, the Ugly, and How the Good Could Have Been Alex W. Howard, CFA, ASA ahoward@srr.com Bradley A. Gates, CFA, CPA/ABV bgates@srr.com Nickolas R. Dreps ndreps@srr.com A primary
More informationVALUE 11.125%. $100,000 2003 (=MATURITY
NOTES H IX. How to Read Financial Bond Pages Understanding of the previously discussed interest rate measures will permit you to make sense out of the tables found in the financial sections of newspapers
More informationAPPENDIX 8 ISSUES TO CONSIDER IN DUE DILIGENCE
APPENDIX 8 ISSUES TO CONSIDER IN DUE DILIGENCE CORPORATE STRUCTURE AND GOVERNANCE (REVIEW DOCUMENTS AND INTERVIEW MANAGEMENT, BOARD, AND ADVISORS) What is the company s corporate structure? C corp., S
More informationIllustrative Discounted Cashflow Analysis ($ Millions) Year 1 Year 2 Year 3 Year 4 Year 5 revenues less: Cost of Goods Sold
FInAnCIAL VALuATIOn - The Income Approach terminal value: A Look at Some Key Issues Take a look at the illustrative discounted cash flow (DCF) model, below. It looks pretty typical profitable and both
More informationDiscounted Cash Flow. Alessandro Macrì. Legal Counsel, GMAC Financial Services
Discounted Cash Flow Alessandro Macrì Legal Counsel, GMAC Financial Services History The idea that the value of an asset is the present value of the cash flows that you expect to generate by holding it
More informationWhat is the fair market
3 Construction Company Valuation Primer Fred Shelton, Jr., CPA, MBA, CVA EXECUTIVE SUMMARY This article explores the methods and techniques used in construction company valuation. Using an illustrative
More informationUnderstanding Valuation: A Venture Investor s Perspective
Understanding Valuation: A Venture Investor s Perspective A. Dana Callow, Jr. Managing General Partner, Boston Millennia Partners Michael Larsen, Senior Associate, Life Sciences Introduction You have met
More informationTIME WARNER CABLE INC. CONSOLIDATED BALANCE SHEET (Unaudited)
CONSOLIDATED BALANCE SHEET June 30, December 31, 2011 2010 (in millions) ASSETS Current assets: Cash and equivalents...$ 3,510 $ 3,047 Receivables, less allowances of $86 million and $74 million as of
More informationPre and Post Tax Discount Rates and Cash Flows A Technical Note
Pre and Post Tax Discount Rates and Cash Flows A Technical Note Wayne Lonergan When discounting pre tax cash flows it is often assumed that discounting pre tax cash flows at pre tax discount rates will
More information1. What are the three types of business organizations? Define them
Written Exam Ticket 1 1. What is Finance? What do financial managers try to maximize, and what is their second objective? 2. How do you compare cash flows at different points in time? 3. Write the formulas
More information2 *Please see Appendix 1-A for a detailed list of assumptions we have made in order to prepare your financial plan.
Dear Mr. and Mrs. Callahan Per your request, we have analyzed your current financial situation using the information we gathered over the phone last month. We have provided you with a detailed financial
More informationAll Information Contained in the Document is intended for the purpose of education and may not be reproduced without prior consent.
All Information Contained in the Document is intended for the purpose of education and may not be reproduced without prior consent. Copyright 2013 CohnReznick, LLP Maximizing Opportunities in Year 15 2
More informationPractice Bulletin No. 2
Practice Bulletin No. 2 INTERNATIONAL GLOSSARY OF BUSINESS VALUATION TERMS To enhance and sustain the quality of business valuations for the benefit of the profession and its clientele, the below identified
More informationFilling the Retirement Income Gap
Filling the Retirement Income Gap A prospectus for the Fund containing more complete information may be obtained from your authorized dealer or from Goldman, Sachs & Co. by calling 800-526-7384. Please
More informationPreparing cash budgets
3 Preparing cash budgets this chapter covers... In this chapter we will examine in detail how a cash budget is prepared. This is an important part of your studies, and you will need to be able to prepare
More informationWHITE PAPER: Creative Management Buyout Strategies
WHITE PAPER: Creative Management Buyout Strategies Abstract: Private equity firms particularly those that focus on buying smaller companies (less than $100 million in value), will often structure the financing
More informationOVERVIEW. The goals of this paper are to:
Private Equity Investments: A Review of Current IRR Practice and an Alternative Approach to Evaluating Private Equity Investments Stephen C. Johnson and Brian D. Uchikata OVERVIEW Generally, the analysis
More informationWhat is an Employee Stock Ownership Plan (ESOP)?
What is an Employee Stock Ownership Plan (ESOP)? An ESOP is a Tax Qualified, Defined Contribution Plan, governed by the Internal Revenue Service and Department of Labor that was put into law under the
More informationPreserve, protect, and promote the value of your business. Start your business trek towards transition today.
F e d e r a l R e s e r v e B a n k o f K a n s a s C i t y O m a h a B r a n c h i n p a r t n e r s h i p w i t h Creighton University School of Law Community Economic Development Clinic Nebraska Business
More informationFISCAL POLICY* Chapter. Key Concepts
Chapter 11 FISCAL POLICY* Key Concepts The Federal Budget The federal budget is an annual statement of the government s expenditures and tax revenues. Using the federal budget to achieve macroeconomic
More informationQuality Meets the CEO
Quality Meets the CEO Jeffery E. Payne jepayn@rstcorp.com Reliable Software Technologies Corporate management does not care about quality. This is the cold, hard reality of the software world. Management
More informationNew Venture Valuation
New Venture Valuation Antoinette Schoar MIT Sloan School of Management 15.431 Spring 2011 What is Different About Valuing New Ventures? Higher risks and higher uncertainty Potential rewards higher? Option
More information