FIN PREP

VALUATION PROCESS

1) Determine the method

of valuation

2) DDM
3) DCF

A) Estimating Revenues - calculate Growth rate

B) calculate FCF → Decide btw FCFF and FCFE

c) Calculate ECAPM other method) &

of capital
cost → COE or CoD

CAPM = Rft BCRM -

Rf )
↳ calculate RF
↳ Calculate Beta
↳ calculate market risk Premium
D) calculate terminal value
E) calculate the value cpreseut Value )
Risk free rate of return
valuation -
Nominal terms

Ignore inflation
Real terms -
-
Real discountrate

→ How
risky
is this
company , for the
-f→ Assumed to
a
be dueiified

Hold a lot
of shares
,
can impactpeirce
&

The risk shock is added to a

of any
diversified portfolio .

Risk free →

Issuing entity should have no

default risk
No reinvestment risk

Be considerate Time horizon

of
.

Ef
: A US $ risk
free rate
→ for valuation
,
cash
flows extend forever → use Max period .

Tf valuation in real Huns →

use red rate bond

when there are too

many options
→
use the lowest to
get close to a
default freak

If the
government has default risk (not AAA rated ) Reduce the defaultspread
a co -
.

⑨ Brazil $denominated
How to
find default spread Bond mate
-

[¥; , pig
C-) UST Bill -

Bond mate
.

, .
.
=
;)
② CDs market →
directly get default spread
.

③ India doesn't have either

↳
sovereign →
rating lookup table -

Aug spread
for
each
rating
⑨
If¥ I → d-
country risk score
→ Another rated
same score
.
county with

Min * Inflation spread into)# country Risk poem spread of country

req = Rfus finding -
Us -
Default
a
(not considered if we issue $ denominated Bond) →
Equity markets risk ( India
-
Us )

Use to year 9 bond YTM as a RF

(minimum expected return)
-
 Equity risk premiun
Premium an investor expects to earn over risk
free rate (Because
you
are
doing Equity
.

Historical -

Premium
historically earned aboues Rf .

① whenever estimate
from past ,
its statistical and there is
always stet error
.

② Biasness based on historical success of stock markets .

BONDVAWA.TW#YTM--7PUofct- = Price
of
Bond

S&P 500
@ 2013

M2CT-P②
-

Last
year
's cash
flow
( Expected of ) -

Dividends &
I
Buy Beeks .

Project expected growthrate

-

use this data calculate

buy
to - backs

start with
default spread
→ Std dev in
.

county 's Eg .
→ Std .
deer in

Index $ denominated bond

[email protected]
to mature market premium
 BETA
2 Approaches
=
Historical data Type of business Lois octonary 4s necessity
from fundamental
Bete -

market prices
on
characteristics -

operating leverage
of the individual - Financial leverage .

investment
① cyclical firms
-

higher Beta ③ High financial leverage

Regression of returns canto ,
Housing ) ↳
High Beta

on investments
against (interest expenses)
② High
returns on market
operating leverage
in
index -

High variance
of Income
Rj = at b Rm ↳
higher Beta

The
t
slope of regression
(good times become great , bad times become terrible )
is the risk of stock BoltomupBdas_
f-
also called Beta 1) what business
you're in
many publicly traded companies
Find as in the sector .

Find out their Average them

stock returns
regression Betas → .

= Return e- Petrovna , Hsiu e-

-
Take out the
leverage effects (Both op & Find -
Unlearned p
Return t -1
2) what is the revenue mix ? →

Choices mix calculate Betas

If multiple businesses →
Aug
use revenue to w -
.
.

Period tong Ys short

•

3) How
-

•
much DIE ratio →
return the Beta
-

Returns : DIWIMIA tooling its

,
non toad .

Mkt Index : National Tuternationofl

,

sector specific

Q bottom Betas 3
why up
And : we replaced the regression beta of
have Ico .

regression
with Beta
of too cos

I mistakes
statistically as the sample size increase Average out
my
.

,
,

$ business =/ of business another business

A
of revenue in one a- $ in

what multiple of revenues these

companies are
trading at .
imaiply the multiples with the revenue

of each business and tax

DIE ratio & where
use that as weights .
Use the co .

rate
of geography
t
majority of tax
•

pays
.
 CAPM Beta

why regression is not

always useful
-
Answer depends upon how to set
up the regression ( choices
matter)
There is standard Beta
of
-

error .

The median standard euros can be as

high as • 20 .

company impacts give

-
How much one the index can also erroneous results .

BoltomupBdas_
? many publicly traded companies
in the sector
1) what
business
you're in Find as
-

Find out their

regression Betas →
Average them .

Take out the

leverage effects C.Both op & Find -
Unleaded p

2) what is the revenue mix ? → If multiple businesses → use revenue mix to calculate w -

Aug
.
Betas .

3) How much DIE ratio →

return the Beta

Q bottom Betas 3
why up
And : we have replaced the regression Beta of Ico .

regression
with Beta
of too cos

I mistakes
statistically as the sample size increase Average out
my
.

,
,

$ of business another business

A
of revenue in one business =/ a- $ in

what multiple of revenues these

companies are
trading at shaltply
.
the multiples with the revenue

of each business and tax

DIE ratio q when
use that as weights .
Use the co .

rate
of geography
it
pays majorly of tax
.
 GROWTH ( Reinvestment or
efficiency
d) Historical (2) Fundamental determinants
Cmost suitable for
of growth
.

stable firms )
Growth in
equity earnings
Hirth matic Aug
=

growth in EPs

iikeometic.my
.

iil better than

is ij Assumption → New
egsh . not issued
but it considers thus Ain net Income =p in EPs
only
start and
,

ending
points if we relax this assumption
in Eps
-

it
ignores any gin net income
-4g
recent
changes
reinvests
How much
equity firm
There is a lot noise back into the business
of
-

&
in historical growth
Net Capet + 9 in wc
ROE in broader
rates .
sense
( reinvested)
Equity mean that
-

Little to no correlation A leverage

A ROE

btw historical U t ) int rate

and future if PAT
margin 3-
-

rates
growth .

ROE Roc
DIE CROC illtt
= + -

b ( Roc + DIE LROC ill-11-1)

g
=
-

how to estimate Reinvestment rates ( young Firms

1) Estimate revenue
growth
2) estimate a
target margin (historical Industry) or

3) calculate
neg
.
review
using sales to operate
costofbebl-YAfoyY-IYeasybear.mg
what is debt ? ① contractual commitment
② tax
③ Damage
deductible
on
default -
instrument

@ which borrow reflect default and

debt Rate
today
cost risk
of you
can
= →

the level interest rates

of
Because I assume that the rollover cost in the market .

short turn debt will be

of
same as
long
term cost debt
of
CoD =
Rf tDefaultspnead& charged by Bank / Bondholder for credit aisle

&
to ① of
How co :
has credit
rating -
use that to identify
② of co .
has a bond issued -
that
gives me rate

traded ?
what if not
Rating
co . is -

own

Find out Interest

coverage ratio ( EB it / Int expenses) -

get mating
.
-

consider the risk

you
can also
country default
COST OF CAPITAL :
we use market value
weights .
 Terminal Value
① liquidation valuation → @ the end Assets ( Lets say post 5 years)
you liquidate
the
,

② Stable Growth Model Cfs @ stable rate forever

grow
→ .

60 Multiples Approach - Menes use -

Not an intrinsic valuation - Relative

STABLE GROWTH
can't exceed that
1T€ Do not exceed the
cap →
growth mate
of Economy
↳ use Rfrate- Exp Fugit .

Exp Real g
.

t
for growth
same
rate

11¥ Correlation btw current & future growth .

Don't wait too
many years for growth .

look @ recent gin revenues , look @ industry competitive

,
Advantage

,#3__ Excess returns → Roc in

perpetuity Compare with Coc & g
-
.

Roc will
from competition
downward pressure
come under .

If you
cannot maintain this Roc in steady
Roc should go to Coc doesn't matter Terminal value will
state
g remain same
.

,
.

#4__ In stable period → lower Coe, low Bela ~ 1

, Higher debt .
 Free Cash Flow
Dividends Potential Dividends
Cash flow to
equity investors -
+
Buybacks + + net
cashflow from
Debt
cash to entire business Op Income Tax
flow -
-
-

STEP 1 :
EARNINGS

months is the best

way Cif year paned)
than Ya
Trailing
-
12 more

normalise the earnings ( commodity or cyclical company)

-

categorization of expenses ( teases and R&D expenses) cleanse of Financial exp

item
op
-

cap exp
-

Impact of capitalized teases : -

Non -
rec .

Exp .

-
Discount the lease commitment @ using
PV cod discount rate .

what happens to lump-sum lease

payment @ end
of 45 ?
↳ Take lease commitment i

]
over
fr
i value
any & see
-

compare
bump sum commitment @ end of Jr 5 how many
years thelumpsupm
Hands .

↳ teases become debt

↳ Get
of capital
true cost

Debt ratio M CoD &

,

↳ when cap Asset, have to

depreciation
you treat change
bases as
you
Restate the
op Income → need tease exp ⇐ depreciation
↳ when
you capitalize
leases , it becomes part of invested capital .

The net
effect can be + we
,
-
we
,
neutral based on cost -

return
relation in the
company
.

Net Income -
Net Reinvestment
Research and Dev Expense -
CAPITALISATION + Net Debt Raised
-

Retrospective effect riff

step 8 Give ammoslisable life for R&D ( Take average) EDIT 4- tax ) + Deep
1 on rate -
r-cinv-wc.IN

what back ?
step 2 8 were R&D exp each .

year going FCFE = faff -

Tnt G- tax rat / t

step 3 : write
off each
year based on
amortization life met

Borrowing
- .

① op Income D Add R&D ⇐ Depth income

consequence é 9 to
op
: →
or

② Coc doesn't A
including unaonoitized R&D exp in cap, As roc ( thef-he)
,
my
③
THESE :
Always use
marginal tax rate Effective tax rates !
This will lower
your
cash
flow These
defer the taxes which
will be paid
eventually
start effective go marginal ?
,

REINVESTMENT
Net + current Amortization
Adjusted net apex apex year
R&D exp
of
-
=

Research Assets

Acquisition of other
firms should also be
adjusted .

Adjusted net
apex
=
Net capex + Acg of other
.
- Amortization of
firms such
expenses .
 Price to Book value

Po DPI
EBP÷q
ROE
=
; if =

gn
r-

BVOXROExpayouetra-lioxcl-gnu-gr.PL
Po =

= PBU = ROE ✗
Payout ratio ✗ Cltgn )
,
rrgn

If POE are based onfuture expected earnings ; g =

G- payout ✗ POE
R0E✗Payoutratio_
Bpg PBV
P¥= =RgIg÷
=
=
- PBV

r -

gn
PBI
- Payoutratio
pB# WE = Roe - I

✗ s
KOE

growth
WE >

WE <
ROE

ROE
-

→
< l

>I

> ROE ( companion variable )

f- High POE -

High PBV

4) EV / EBITDA

very popular I¥_g

this is -

EVE
CoC
EV / EBITDA # Expected 8 EU = EBITDA a-E) + Deplt) Cex dwcap -
-

> tax rate Wace

g
-

> 1 Reinvestmentrate divide EBITDA

Roc
by
①
higher laxuate
why
didn't
→

we
lower EBITDA
care about t in PE ?
Ev_
EBITDA
=

WACC
g
- t.DK/EB1tDA--nexafYgB---g&I
WACC
g
- -g
-

we were already looking @ PAT

① for
any g ,
how much R ?

Very high
R
for long ?
③ Very Risky to -

, very Risky country → High Coc → low multiple .

Tax rate -

Multiple- Inverse
Reinvestment Multiple Inverse (as a given growth)
- -

5) EU/sales multiple -
Rainestmentrate
-> COC

south
->

COMPANION UARIABLE
-> rate. (DesicRelation
PIB-ROE
EUIfitcap -

Roc
EU sales of margin
Determinants
i m m e
oftips one
 Equity value and EV
Normal
Equity value =
Market cap = sticker Price M Price ✗ shares otsbiluted
of
= . no -

Enterprise value =
Actual cost =
Eg .
+ Debt -
cash

1
Anything that will need us to set
funds aside -

Anything
that will save funds for us)

thus ,

EV =
Equity value + Debt +
Preferred stock -1 Non -

controlling hit -
cash 9 Cash Eg .

-
DILUTED cell Ch .

01s
method for options
-

Use
treasury shock

money options get exercised

-

Anime all the in -

the

shares
Company buys back some
from money need a remaining
-

forms dilution

::÷÷:* .*÷I!÷
CONVERTIBLE
.
BONDS -
All or
nothing

straight Add
- "
Rsv

level Add4 / else

certain
nothing
PERFORMANCE SHARES Price touch
Tf
-
a -

www.
 Calculation
of Enterprise Valley
& in

ADD1N9ITEMS_ SUBTRACTING ITEMS

① Items that require immediate

Repayment An item that will save
you money
cash
-
Debt or
give you some extra .

Preferred stock
either
immediately or in future .

cash
② Items to be repaid in future but money Net
operating Losses
-

↳ will
won't from Normal cash flows : money through
save
come you
tax deductions in
future
-

Unfunded Pension
Obligation
-

Turf
steam
longterm
-

has nowhere
if a co .

enough ↳
if liquid enough
normal cash flows to
pay ,
-

have to Borrow
they'll d. what item do add back
for
1 you
comparability ?
Debt → ADD
Any Aid non -

controlling interest llheiaority

if you 250-1 consolidate
of
-
own .
a co .
→

Revenues Reflected = loot .

capital teases
-

Equity value Reflected =

% owned
↳
Debt like items I
add interest i. e.
same as above Thus ,
we non -

controlling
the part that we do not own
against
the revenue that is not our own .

Restructuring / Environmental Kab

-

I can have ne
Enterprise value ?
company
a
-

And Yes
,
-

extremely low market cap

-

Extremely high cash Brat .

(companies on the brink

of Banknup g)
 Miscellaneous Questions
d- would not exercise in the
option ?
why someone an
money
-

And -

1) Future expectations of price increase

2) Time barred
by company

what is Take rate ?

ARE Rwenue→o
This is a
big deal for payment
4mV processing cos
t
value
Grote
Merchandising
I can the
Equity value be -
we ?
value = firm value Debt
Art Eg
-

market values
① Tf we are
market value
taking than this is not possible because
cannot be
of Eg
.
-
he .

① If you have estimated firm value

using Dcf , & Mug Debt
Equity can be he
-
.

1 estimation ever estimated too low

?#
-

6 Debt is overstated
Mu
\
of
Everything is correct & Eg in
foin is worth
nothing .
 Impactof capitalized teases:-

-
Discount case
the commitment PC using COD discountrate.
-

whathappens to lump-sum case

payment end of 45?
↳ Take lease commitment
--
over values
and compare
a see

tempsury commitment end of 75how many years thelumpsup

stands.
↳ teases become debt

↳ Gett he cost
of capital
Debtratio COD
i,
↳ when cap Art, have to
depreciation
you treat charge
leases as
you
Restate
the
of Income -> Add teas exp t depreciation
↳ when
you capitalize leases,
it becomes partof invested capital.

the,-we, neutral
The net based
effectcan be on cost-return
relation
in the
company.
Research and Der Expense -
CAPITALISATION

-
effect
Retrospective
Step 1:
Give ammostisable life for R&D (Take on
average
What back?
Step 2: were R&D exp. each
year going
Step 3:
write-off each
year based on
amortizationlife

-quences:Pop Income DiAdd RaD,1) Repl -> or

op income

② Col doesn't, including unamolized Radexp in cap, As

my
ROC (twel-ne)
⑤
Leveraged Buyout
Assets

-
$ 1 million from me
-
$ , o mu -

Acquire a
company using leverage
$9 Loan @ lot futures and it collateral debt
mn use as
for
.

Business ( collateral)
of

¥-
why
→
targe acquisitions v10
-

commit
1.5m Pretax before
having to a lot
of capital
← ☒ Interest
book Pretax pee
liabilities year
d4s⑦
400k net Tuco me / yeah
Pretty good because I
only paid $11 .

Hot .
returns
Merger Model
-
Miso known as accretion 1 dilution model 1 MAA model
In model , EPs Accretion ( )
a
meager you focus
on
Buyer's EPs
-

goes up
Dilution 's EPs )
Eps
Ctbuyer goes
down

E- why mergers and

acquisitions ?
Ads 1) Financial Reasons : -

CONSOLIDATION -
Market Shale

GEOGRAPHY
-
New Market

2) Other reasons 8

Imp tech, patent, or other intellectual property

-

Threat to business

Employees (tech start-ups

Proust : -

① Determine the Purchase Price → Dcf Public Comps Precedent transactions

, ,

② Determine the Purchase Method → Cash ( Cheapest) Debt stock

to &
t

could have earned interest

Pay interest Reduce EPs
Cmaybe) , depends on PIE
of Fth
Depends on → co's
upcoming plans ( Expanding buying
,
a new
factor, Raising debt )

The premium that the above the seller's shareholder 's called Goodwill
buyer Equity is
#
pays .

calculatuyh-cereli.tn/DihitionandbuateSenntiirtyTables.-
compare -
New combined Bayer
v1, EPs
's old
projected
EPs before acquisition

you
can do
sensitivity tables → various purchase prices transaction
,
structures
,
purchase method
µ

Different Eps
 comparingpaymeutmetuodsaudui
a
pads-i.is
analysis
simple cost-Benefit .

The Pre tax income contributed

-

by seller 4s Tut
foregone on cash / cash paid on debt 4
effect of issuing Eg .

d t

If higher → Accretive Pf higher → Dilution

* what does a
buyer want ? →

→
All cash → Notavailable →
usedebtqcequ.ly - Riskier than cash .

what does a seller want ? I

Buyer should check

if trading at very
buyer is a
① heueuage ratio →
Totalsebt →
to see
if can

high PE ratio cash might EBITDA meet

obligations
\
,

not be the cheapest option .

② %
of
debt used in similar deals .

✗ PE cost stock
=Yoo= H
too →
of '

this is lower than ① How much ownership given

post tax
/
foregone interest
oy cash . Egi④→ ② Dilution to
existing shareholder

③ share price

_RulesofThumb_ %

① If buyer 's PE ratio > seller PE ratio Accretive C

buyer get more earnings per $ paid)
(this approach assumes that the taxrates are same , no
prem .

paid
,
no effects such as depth a Amort .
Asset write-ups

② Compare cost-Benefit

Buyer 's weighted 4s Yield seller

Aug .
cost
of
→ cost
of cash Reciprocal of seller 's PIE
torque int rate on cash ( 1- tattletale)
cost Debt
of
Buyer tax rate
interest rate on debt 4-
cost
of stock

Reciprocal of BFF
's =
NFg.TT?k-
 Private company valuation
owned business
A
privately up publicly traded bunion - which
company has higher cot ?
Private will
co have
higher CoE
.
.

A publicly traded, investor has an option to

diversify In public co process of trading takes
.

transaction
care
of illiguiditg
.
its not
easy
to
get out of in private co
, usually liquidity
,

discount is present .

Best Potential buyer for private business ? Public co → The risk them is much
foe more
.

casual because their investors are

diversified .

Process Private Foul Broad Transactions

of valuing company :
-

① value entire business or

just Equity !
→
There is no marketprice ① Put -
Put

② Put - Public
→ The financial statements might have different Afc policies
③ Put -
Repo
There are no market price inputs ⑨ Pvt -
V C- Public
shorter
history that public co .

Difficult separate salaries dividends

to
from

① Private private Transactions

-

to : -

No diversification on either side

-

Investment is illiquid

value of Person
key
-

GI Revenue $1.2 ñul

Pretax op profit $400K
lease commitment $120,000 pays -

reps

①The absence
of
a
salary is issue .
Bela is used because investors are diversified & they care
only about

the risk that cannot be diversified .

BETI :
Publicly traded restaurants -
unturned - But these are
fast food chains
µ 11 upscale retailers -

uvleueud -
More
closely related
 As an audio ersifeid investor ,
you
want more return
for
all the evite
of
business because

there is no risk that could be avoided

by diversification .

Retail co .

what
if you could
find out what proportion of risk restaurant/Tomes market ?
of from
Total untamed Beta =
Market Beta / correlation with market

EstimateDlEuatio&coE_
what is DIE
of typical public co . in the sector .

Ute this
average to calculate levered Beta

Estimate cost
of Debt and Capital
-

Treat Lease as interest expense

-

Interest
coverage ratio
= 400,000 11,20 ,
000 =
3-33 Rating = BB + Default spread = 3.25%

After tax cost

of Debt =

( Rf + spread) ( t - t ) = ( ) (1--40)
4. 2T 1- 3.2T = 4.501 .

Then
,
based on
avg
.

industry Debtfcquatio ,
we calculate cost
of Capitol.

② Clean up the Books

-
Add $150,000 wages to hire a
chef
-
Remove lease
from expense , capitalize as debt ( Pv
of $120 million for 12ps @ → %)

③ Assumes the impact of key Person .

Adjust the
operating income forthe impact .

⑨ Assume expected growth rate

Reinvestment =
81Roc =
2%1201 .
= 101 .

value of Restaurant
⑤ Inputs to valuation = Expected Forfaextyeas / Coc g) -

Adjusted OBIT
→ = $296,000 = Expected OBIT next year C.tt/Cl-R)/Coc -8)
→ Tax rate = 40-1 .
= 296000 ( 1.02) (1- 4) ( t.io) / C. 1325
.

)
02 - •

→ Coc = 13.2 Tt . =
$1.449 m

→
Expected g = 2T .

lot Value of Eg in rest $1449m $0.928m Cpvq based

=
→ R= .
.
-

=$O•52@
 But this renders DIE ratio
qq.gg?-g=
180%

to make valuation consistent ?

How internally
-
checkbox iteration
Use this assessed value DIE
for
-

⑥ Consider the
effect of •
liquidity cos CHIH
/
.

Tlliquidity discount is
usually btw 30% But it should Time Comtois)
vary
so -
.
across -

-
Buyers CLE)
where these discounts come
from ?

① Restricted shares →
compare mkt price
of Restricted its normal 8h .
 firm with we
earnings :
-
-

A) Growth estimation is
difficult
① Historical data → calculation difficult /not possible
② estimate Not available not
useful
Analyst → or
'
earning
③ Fundamental If ) of current earwig
we
-

important inputs
-
→ Need 2 useless

B) Tax impact calculation is complicated as losses can be carried forward .

( Terminal value estimation)

c) Going concern
concept
may
not
apply .

start-ups
- young
wineglasses
_qmpaay☐wyfam)uqeqµ]→
new bunion requires
1) firm specific reason
huge infra
,
investments,

2) sector specific will lose

money initially
-

3) cyclical business →
f f \
←
Research &
Dep costs
small tech firms
of
1)strategic 2) Inefficient 3) Too much

choices operations Debt

Fritze : -

1) Firm specific problems : -

Tf lots attributed to a
specific event → Estimate prior earnings and use
for computing
t fundamentals CROCS .

Remove all aspects of event .

if loss cannot be attributed to

one
expense
.

-
any abnormal changes
compare data with last year and check .

OI i Apply your average operating margin from poor years 4 apply to revenues .

(As a
general rule you ,
have to make adjustments in earnings of firms after
the

year in which
they
have made
major acquisitions)

2) Cyclical Firms : -

There can be →
Based on avant and expected cycle , adjust the growth rate for future
Normalize the earnings over period
two ways
earnings Any of $
-
a
.

→
Avg . pot or
margins is
 Term problems @
Long firm :
-
-

1)strategies :
if the
change is now permanent -

Adjust your expectations

Anume traditional
if
you expect recovery
to normal
geoweua margins
-

variable
Operating Operatingtimemargin
2) is the here
:
key .

Over increase
your margins towards
industry averages
-

3) Fm¥tever# earnings earnings

ne
eg the op
-
- .
.

--
Distressed Distressed +
High
but no

t
threat
of Bankruptcy Probability of Baukaupcy .

Leverage inputs beta & can

r firm 's Coo

--
Estimate Fctc value the
+
fain as
Reduce debt Willenhall
+
ratio overtime
Adjust cost
& Benefits

of Debt
Valuing young firms or start-up firms
3 aspects → Finn's current Past earnings competitors
financial statements and Prices te

d & Better or worse ?

Roe , R
, inputs cyclical ? volatility
, ,
Risk if, growth
estimates
growth

Keydiffereuces
- value profitability proposition
-

defying C- ve earnings)

significant investment in value

land other
No
buildings or other rats Bulk
of from
-

.
,

intangible assets
This is problem of estimation : -

Venture capital Method 6-

① ② ③
forecast
earning of the film Take an
earning multiple estimated
traded
Discount
in a
fatale year when
,
the
by looking at publicly to pv
business
company
can be expected to
go firms in same @ Target rate
.

public of return .

①
issues today's multiple is used
:

② Freedom in
setting target rate of return
③ forecasting earnings
ÉMaysis : -

1) Assess firm 's current

standing
Use the latest results
,
TTM is a
good period

2) Estimate Revenue growth

→ Past growth rates
of
the
firm C. Adjust as
per trend )
→
Growth rate
of
market that
firm serves
→
Barriers to
entry and competitive advantages possessed by the
firm
3) Sustainable
operating margin growth
in stable :

→ took at
firm 's true
competitors
statement to
→ teecluttes the income
get a true measure
of its
operating margin :

4) Estimate reinvestment to
generate growth
:

usually ; g
= Roc ✗ R

used
But when a
firm has
negative earning ,
this
formula cannot be .

we use a sales /cap ratio

expected reinvestment =
Expected A revenue
sales 1 capital ratio

How much sales

of capital generate
each F & how much capital would be needed
to
generate a
target amount of Revenue
.

-
In
steady state ,
we must use the
original formula .

5) Estimate Risk parameters and Discount rates 6-

Beta → Can't
regression
use because
of
Lack
of history
↳ use bottom-up approach .

Comparable firms listed

for
two or more years
,
take average .

Cost
of Debt → since no
rating can't estimate based on
rating
.

↳ interest coverage ratio estimated

Estimate an estimated based on future earning ,

based on that determine a

meeting and calculate cost .

( calculate the value ; Terminal Value is most

impi consider pros .

of not being going concern)

 Industry Analysis framework

F-
Porter 's 5 PESTEL SWOT

forces
very simple approach
To what are
analyze an
industry ,
take a on the

constituents
of the industry : -

1) what is the
key product / service is )
of the sector ?

2) who are the customers

3) which companies operate in this sector ?

value chain ?
4) what
industry
is the

5) Are there
any
sub sectors
-

?
6) Evolution the industry & its
of what are
key growth drivers

7) what are the recent trends and developments in the

industry ?
MARKET DYNAMICS
-

Market Overview → value chain

Attractiveness Porter 's
Industry
-

→ 5 forces

Growth Drivers current trends

,

Market challenges

MARKET SEGMENTATION
-

service
Type /Product
-
Market size → Total value and growth
-
and asks / customers
Geographical segmentation
-

-
Sub sectors

COMPETITIVE LANDSCAPE

competitors & their market share

key
-

concentration
 TEKNOLOGI CHEDI UM) COMMERCIAL CHCGH)
-

Business focus → Digital I Mextgenlech ? -

similar Assets available for sale ?

?
Service
Technology Partners Business
cyclical or
defensive
-

-
Material specialization ? Horizontal / -
client Base
diversification
vertical / services ? -
stable employee base w/ value added skill set .

r
q

INVESTMENT

FACTORS

>

F1NANC1AL_
<
CTMEDIUM) MANAGEMENT (HIGH)
growth growth / ?
scale
Existing or expected can
manage
- -

Rationale ? Turnaround
Angle ?
History acquiring 1 Integrating Asset ?
-

of
-

Track record value ovation

Revenue &
Margins sustainable ?
of
-
-

Room for expansion ? can

meaningfully deploy capital !
-

Stable / Predictable cash flow ?

COMMERCIAL TEKNOLOGI
-

Target
Market size -

Partnership Ecosystem
-

sustainable competitive Analysis -

IP creches data )
Criticality of services
9
-

concentration
customer
quality a
-

r
VALUATION
FACTORS
£ I
FINANCIAL
Business Mix ( High growth God looting verticals / MANAGEMENT
-

Revenue (sales pipeline repeat purchases ) Experience track record

Recurring
- -

.
,
,

Gross
Margins
-

-
Growth (In volatile as well as stable periods )
contracted
leverage Backlog
-

# Pipeline
Revenue
visibility -
Revenue split
-

sustainable EBITDA Margins

> RenewI based
^