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11/11/10 Valuations 1
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11/11/10 Valuations 2
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Equity Research
• Comparable company analysis
• Competitive advantage analysis
• Discounted Cash Flow (DCF) models
• Earnings forecasts
• Financial statement sensitivity modeling
• Model building and maintenance
• Segment analysis
• Weighted Average Cost of Capital (WACC)
analysis
11/11/10 Valuations 3
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Valuations
1. Finding out the value of a company (EV)
• Mergers & Acquisition
2. Finding out the value of Equity (Stock)
• Recommendation to Buy/Hold/Sell
3. Finding out the value of Debt ( Bond)
• Profitability of investment
11/11/10 Valuations 4
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Projections Required
• Growth Rates for Revenue of the company
• Expenses
• WACC
• Beta
• Other Components of BS & IS
11/11/10 Valuations 5
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DCF Valuation
• Dividend Discount Model
• Free Cash Flow to Firm (FCFF)
• Free Cash Flow to Equity (FCFE)
FCFF
EBIT(1-T)
Add: Depreciation
Less: Capex
Less: Change in Non Cash WC
11/11/10 Valuations 9
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FCFE
Net Profit
Add: Depreciation
Less: Change in NCWC
Less: Capex
Less: Net Debt
Relative Valuation
• Price Multiples
• Enterprise Multiples
Price Multiples
• PE Multiple
• PEG Multiple
• PES Multiple
• PBV Multiple
• POCF Multiple
• PS Multiple
11/11/10 Valuations 12
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Enterprise Value
EV=
Market Capitalization
Add: Debt (all interest bearing)
Less: Cash
11/11/10 Valuations 13
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Enterprise Multiples
• EV/Sales
• EV/EBITDA
• EV/EBIT
• EV/EBITDAR
• EV/EBITDARM
11/11/10 Valuations 14
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Thank You
The house is open for Q & A and Discussions
Presented by:
Inder Preet Singh
11/11/10 Valuations 15