Advanced Valuation Analytics
Balance Sheet
1998
Current AssetsCash and Equivalents
Trade Receivables
Inventory
Other Current Assets
Total Current Assets
Property & Equipment
Other Assets
Total Assets
Current Liabilities
Long-Term Liabilities
Other Liabilities
Total Liabilities
Equity
Total Liabilities & Equity
Working Capital
1999
2000
2001
2002
2003
$500,000
$550,000
$600,000
$450,000
$300,000
$125,000
4,000,000
4,500,000
5,000,000
5,500,000
4,200,000
3,100,000
2,400,000
2,600,000
2,750,000
2,850,000
3,000,000
2,600,000
200,000
200,000
200,000
200,000
200,000
200,000
7,100,000
7,850,000
8,550,000
9,000,000
7,700,000
6,025,000
8,085,885
8,085,885
8,085,885
8,085,885
8,085,885
8,085,885
933,346
933,346
933,346
933,346
933,346
933,346
$16,119,231 $16,869,231 $17,569,231 $18,019,231 $16,719,231 $15,044,231
$3,000,000 $3,500,000 $4,500,000 $6,000,000 $7,000,000 $6,500,000
5,000,000
4,500,000
4,000,000
3,500,000
3,500,000
3,500,000
0
0
0
0
0
0
$8,000,000 $8,000,000 $8,500,000 $9,500,000 $10,500,000 $10,000,000
$8,119,231 $8,869,231 $9,069,231 $8,519,231 $6,219,231 $5,044,231
$16,119,231 $16,869,231 $17,569,231 $18,019,231 $16,719,231 $15,044,231
$4,100,000
$4,350,000
$4,050,000
$3,000,000
$700,000
($475,000)
Advanced Valuation Analytics
Income Statement
1998
1999
2000
2001
2002
Net Sales
$30,000,000 $33,000,000 $32,000,000 $30,000,000 $26,500,000
Cost of Sales
21,500,000 24,500,000 24,000,000 20,000,000 20,000,000
Gross Margin
8,500,000
8,500,000
8,000,000 10,000,000
6,500,000
Operating Expenses
4,900,000
4,950,000
3,600,000
4,000,000
4,500,000
Depreciation
1,100,000
1,350,000
1,900,000
1,900,000
2,000,000
Other0
0
0
0
0
Operating Profit
2,500,000
2,200,000
2,500,000
4,100,000
0
Interest Expense
770,000
930,000
1,050,000
1,030,000
600,000
Other Income (Loss)
25,000
25,000
25,000
25,000
25,000
Income Before Taxes
1,705,000
1,295,000
1,475,000
3,095,000
(575,000)
Income Taxes
716,100
543,900
619,500
1,299,900
(241,500)
Net Income
$988,900
$751,100
$855,500 $1,795,100
($333,500)
EBI
$1,450,000 $1,276,000 $1,450,000 $2,378,000
$0
EBIT
$2,500,000 $2,200,000 $2,500,000 $4,100,000
$0
EBITDA
$3,600,000 $3,550,000 $4,400,000 $6,000,000 $2,000,000
Net Income (Unadj)
$959,306
$775,000
$865,000 $4,021,100
$926,500
Depreciation/Amort.
1,100,000
1,350,000
1,900,000
1,900,000
2,000,000
Changes Work Cap
908,330
181,816
(293,408) (3,972,523)
(807,008)
Investing Act
(1,604,564) (7,918,481)
(801,652)
(785,937) (1,098,795)
Financing Act
(1,967,445)
6,331,404
(2,005,511)
(764,264) (1,020,697)
Dividends
0
0
0
0
0
Cash Flow
($604,373)
$719,739
($335,571)
$398,376
$0
2003
$23,000,000
20,000,000
3,000,000
4,300,000
1,900,000
0
(3,200,000)
450,000
25,000
(3,625,000)
(1,522,500)
($2,102,500)
($1,856,000)
($3,200,000)
($1,300,000)
($3,625,000)
1,900,000
4,027,840
(1,767,503)
(535,337)
0
$0
Advanced Valuation Analytics
Net Sales and EBIDTA
$35,000,000
$7,000,000
$6,000,000
$30,000,000
$5,000,000
$25,000,000
$20,000,000
$3,000,000
$15,000,000
$2,000,000
EBITDA
Net Sales
$4,000,000
$1,000,000
$10,000,000
$0
$5,000,000
-$1,000,000
$0
-$2,000,000
2006
2007
2008
Net Sales
2009
2010
2011
EBITDA
Advanced Valuation Analytics
Valuation Numbers: This Year vs. Last Year
Factor
Value of Company
Value Per Share
Value-Guideline Method
Value-Guideline Method-IC
Value-Capitalization
Value-Capitalization-IC
Current Earnings
Cash Flow Capacity
EBITDA Capacity
Revenue
Total Debt
Book Value
Current Treasuries
Risk Premium
Capitalization Rate
Comparables Information:
Price Index
Price/Earnings Ratio
Price/EBITDA Ratio
IC/EBITDA Ratio
Price/Book Value
Price/Sales
Last
This
Percent
Valuation
Year
Change
$3,000,000 $2,537,000
-15.4%
$5.00
$4.23
-15.4%
$4,480,755 $3,031,840
-32.3%
$12,651,100 $10,545,000
-16.6%
5,061,144
2,174,274
-57.0%
13,231,489
9,687,434
-26.8%
-$333,500 -$2,102,500
NA
450,000
382,025
-15.1%
3,300,000
2,775,000
-15.9%
26,500,000 23,000,000
-13.2%
8,170,345
7,513,160
-8.0%
6,219,231
5,044,231
-18.9%
5.77%
4.36%
-24.4%
12.88%
13.68%
6.2%
6.51%
3.94%
-39.5%
100.00
18.27
5.62
7.94
0.97
0.61
82.76
30.24
3.12
6.40
0.57
0.38
-17.2%
65.5%
-44.5%
-19.4%
-41.2%
-37.7%
Advanced Valuation Analytics
Capitalization Of Cash Flow Method
• Estimate the capitalization rate.
• Estimate the cash flow capacity.
• Divide the cash flow capacity by the capitalization rate.
Advanced Valuation Analytics
Capitalization Rate
• Risk free rate of return
• Equity risk premium
• Small stock premium
• Company-specific risk premium
• Equals the discount rate
• Subtract the long-term growth rate
Advanced Valuation Analytics
Cash Flow Capacity
• Most recent year
• Mean or weighted average
• Another way to estimate cash flow capacity• Projected Year
Advanced Valuation Analytics
Gradual Increase
$1,600,000
$1,477,455
$1,407,100
$1,340,095
$1,400,000
$1,276,281
$1,215,506
$1,157,625
$1,102,500
CASH FLOW
$1,200,000
$1,000,000
$1,050,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
2006
2007
2008
2009
2010
2011
2012
2013
2014
Advanced Valuation Analytics
Erratic History
$3,000,000
$2,646,000
$2,520,000
$2,400,000
$2,500,000
$2,500,000
CASH FLOW
$2,000,000
$2,000,000
$1,500,000
$1,500,000
$1,000,000
$1,000,000
$500,000
$500,000
$25,000
$0
2006
2007
2008
2009
2010
2011
2012
2013
2014
Advanced Valuation Analytics
Hockey Stick
$3,906,250
$4,000,000
$3,500,000
$3,125,000
CASH FLOW
$3,000,000
$2,500,000
$2,500,000
$2,000,000
$1,500,000
$1,050,000 $1,102,500 $1,157,625
$1,000,000
$1,276,281
$1,215,506
$1,000,000
$500,000
$0
2006
2007
2008
2009
2010
2011
2012
2013
2014
Advanced Valuation Analytics
Sources of Market Data
• Publicly-traded stocks
• Iba data base
• Pratt’s stats
• Done deals
• Zweig’s valuation survey
• Other specialized sources
Advanced Valuation Analytics
Company Results
• Net income
• EBITDA
• Cash flow
• Owner’s discretionary cash flow
• Revenue
Advanced Valuation Analytics
Discounts/Premiums
Does the interest
holder have control
over the entity?
YES
NO
Is there a public
market for the
interest?
YES
Controlling,
as if freely
traded value
Is there a public
market for the
interest?
NO
Controlling,
non freely
traded value
YES
Non-controlling,
as if freely
traded value
NO
Non-controlling,
non freely
traded value
Advanced Valuation Analytics