Which are the valuation inputs?
- Income statement
- Balance sheet
- Cash flows
- Auditor’s report
- Business plan
Income statement features
- Accrual accounting: revenues recognized in the period of competence
- Expense’s categorization: Operating (OPEX), Capital (CAPEX), Financing
- Formats: nature, function, contribution margin
FORMULA: Income statement
EBITDA – D&A =EBIT -Financial Exp \+/-Nonrecurring items-Taxes =Net Income – Dividends = Retained earnings
Balance sheet formats
- Solvency and liquidity format: splits assets/liabilities by duration
- Capital employed=Invested capital
FORMULA: Balance sheet
Capital employed=FA+WC=E+NFP=Invested Capital
FORMULA: Working Capital
WC=Inventories+Accounts receivables-Accounts payables
FORMULA: Net Debt
Net Debt (NFP)=short/long term debt -marketable securities -Cash and equivalents
FORMULA: FCFF/FCFO
FCFF= EBITDA- Delta WC -/+ Inv/Div in fixed assets(CAPEX) – Taxes on EBIT
FORMULA: FCFE
FCFE= FCFF (Pre-tax) +/- Net Interest Expenses +/- Delta Net financial debt – Taxes on net income(EBT) (depend on changes in net financial position)
Estimates in a valuation
- Macroecon: GDP growth, consumption, exchange rates, inter/inflat rates
- Industry: market growth, competitors policies, tariffs, regulatory changes
- Firm-specific assumption: sales and cost prices, WC evolution, net debt evolution
How to test the assumptions in a valuation?
Through ROS and ROI (if grow too much underestimate of fixed assets and marketing and other costs).
