Business Valuation and Analysis Accounting 6620 Spring 2014

Marlene Plumlee
marlene.plumlee@utah.edu

Chronar Corporation
1.

business strategy
What is their business (what are they selling)? How do they plan to get rich? What is their marketing plan? What are the key components of the strategy? Will the strategy work if carried out flawlessly? How long would it generate abnormal returns? Is the company successful in implementing its strategy?

What are the key success and key risk factors?

2. accounting analysis 3. financial analysis 4. prospective analysis and valuation

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Chronar Corporation
Key success factors key risk factors

Next step
1. business strategy 2. accounting analysis
Assess degree to which firms accounting reflects underlying business reality, IN THE CONTEXT OF ITS BUSINESS STRATEGY.

Identify accounting distortions and quantify their impact on the sustainability of profits.

3. financial analysis

4. prospective analysis and valuation

Revenues: as stated restated Solar Photovoltaic 1,800,000 0 R&D Contracts 263,634 263,634 Technical Assistance Contracts 88,066 88,066 Other 59,694 59,694 2,211,394 411,394 Costs and Expenses: Research and Development 1,319,113 1,319,113 Admin., Gen. And Selling 543,353 543,353 Cost of Research Contracts 175,845 175,845 Cost of Assistance Contracts 73,243 73,243 Other 51,070 51,070 2,162,624 2,162,624 Operating Income 48,770 (1,751,230) Other Income (Expense): Interest Income 147,781 147,781 Interest Expense (186,963) (186,963) (39,182) (39,182) Income Before Taxes on Income 9,588 (1,790,412) Taxes on Income 1,500 1,500 Net Income 8,088 (1,791,912) Earnings per Common Share 0 0 Common Shares Outstanding 1,660,854 1,660,854

Assets: Current Assets: Cash Short-term Investments Accounts Receivable Other Receivables Inventories Prepaid Expenses and Other Total Current Assets Property and Equipment (net) Other Total Assets

as stated 68,501 557,791 1,890,849 56,598 0 49,829 2,623,568 1,128,951 78,574 3,831,093

restated 68,501 557,791 90,849 56,598 0 49,829 823,568 1,128,951 78,574 2,031,093

Liabilities and Shareholders' Equity: Current Liabilities: Accounts Payable etc. 522,419 Current Maturities of LTD 100,573 Total Current Liabilities 622,992 Long-Term-Debt, less cm. 730,356 Total Liabilities 1,353,348 Shareholders' Equity Common Stock 17,552 Paid-in-Capital 5,412,392 Deficit (1,683,963) Subscriptions Receivable (951,000) Unearned Compensation (156,573) 2,638,408 Less Treasury Stock at Cost (160,663) Total Shareholders' Equity 2,477,745 total equity and liability 3,831,093

522,419 100,573 622,992 730,356 1,353,348 17,552 5,412,392 (3,483,963) (951,000) (156,573) 838,408 (160,663) 677,745 2,031,093

Next step
1. business strategy 2. accounting analysis

3. financial analysis
Use ratio and cash flow analysis to evaluate current financial performance of the firm and assess its sustainability. 4. prospective analysis and valuation

Chronar Corporation
Q4: financial analysis start up company, so focus on cash!
SCF Net Income Net Income 8 + depreciation + depreciation 0 - increase in AR - increase in AR -1759 +decrease in Inv +decrease in Inv +16 +decrease inetc. prepaids +14 +decrease in prepaids +increase in payables +152 +increase in payables Cash from Operations -1569 Cash from Operations 8 +140 -1759 +16 +14 +152 -1429

Chronar Corporation
1. business strategy 2. accounting analysis 3. financial analysis

4. Prospective analysis and Valuation

Forecast firms future (pro forma F/S, ratios) and value the firm based on its expected future payoffs.
eVal
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Chronar Corporation Valuation

Chronar base case eVal4.xls

Default value (a nave extrapolation):

Intrinsic share value:

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Assumptions necessary to reach $75 market price (July 1983)

F:\Chronar $75 .xls

Assuming:

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