Valuation

Fundamentals

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Contents

Valuation Overview

Equity Value

Enterprise Value

The Bridge

Relative Valuation

EV & Equity Multiples

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 Valuation Overview

EQUITY ENTERPRISE
VALUE VALUE
The value of the The value of the
shares of the company company’s operations
$

ABSOLUTE RELATIVE
VALUATION VALUATION
Based on the company’s Based on comparison
individual characteristics to other companies

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Equity Value

=
TRADED NUMBER EQUITY
SHARE PRICE OF SHARES VALUE

$
$ $

Also know as market value or market capitalisation (traded company)

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 Enterprise Value

Asset Value Financing

Mortgage
300,000
House
500,000
Equity Value
200,000

ASSET VALUE NOT AFFECTED BY FINANCING

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The Bridge

Value of Operating Business

$
Net Debt

Value of Shares

Enterprise Value
Equity

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 The Bridge

Cash

Value of Operating Business $

Debt

Value of Shares

Enterprise Value
Equity

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The Bridge

Equity to Enterprise Value Enterprise to Equity Value

Net Debt + Equity Value = Enterprise Value Enterprise Value – Net Debt = Equity Value

$ $
Net Debt Net Debt

Enterprise Value Enterprise Value

Equity Value Equity Value

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 The Bridge – Calculating EV and Equity Value

Derive from bridge

$
OR
Net Debt
Derive from bridge
Calculate from
multiples or DCF

Enterprise Value OR

Calculate from
share price
Equity Value

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Relative Valuation

Enterprise Value Equity Value

Operating assets, less liabilities $ Total assets less total liabilities

Operating focus Ownership focus

$ Unaffected by financing decisions $! Affected by financing decisions

DRIVEN BY DRIVEN BY

Company Performance Company Performance

Industry Dynamics
Industry Dynamics
General Economic Factors
General Economic Factors
Financing Decisions
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 EV & Equity Multiples

Value consistent How much investors pay in

with value driver relationship to a value driver

Value Value Driver Multiple

EV 1,000.0 EBIT 100.0 EV/EBIT 10.0 x

Cash 100.0 Interest Income 1.0

Debt (300.0) Interest Expense (15.0)

Tax Expense (25.8)

Equity 800.0 Net Income 60.2

No Shares 100.0 No shares 100.0

Price 8.0 EPS 0.60 P/E 13.3 x

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EV & Equity Multiples

Enterprise Multiples Equity Value Multiples

Most common EV / EBIT PE

EBITDA is closer to “cash” and reduces accounting

differences and M&A accounting issues
EV / EBITDA

Use revenues for context EV / Revenues

Use price to book for balance

sheet driven companies Price/Book

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 Last Twelve Months

When valuing a company, the most up to date earnings figure is preferred

Fiscal Year 1 Q1 Year 1 Q1 Year 2 LTM to Q1 Year 2

EBIT 100.0 25.0 30.0 105.0

Old New
Annual - quarter + quarter = LTM

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