Different Types Of Valuation Methods

c. SDI’s officers have been under pressure from the board of directors to do something to improve the price of the common stock. Management is also concerned about the stock price personally because bonuses are based on the performance of SDI’s stock price relative to other firms in its industry. So, they would like a detailed explanation of how the market price is determined—what do investors look for, and what can management do to provide what investors want? Bob Wilkes also wants you to explain how stock valuation information be used to help estimate the company’s cost of equity. Tony Biddle provided some information that can be used in the stock valuation process. First, as background on what investors think about the company, here are some representative quotations taken from analysts’ reports issued during the past few years.

The share price of $270,000 was significantly higher because the “fair value” as perceived by the dissenters, which accounted for the chance of an IPO. Taking into account the recently traded Kohler Co. share prices, the book value of a share, and the possibility of an IPO greatly inflated what the perceived value of each share should be. While Kohler believed their voting control and ownership structure would remain the same, the shareholders believed otherwise. Because shareholders assumed Kohler would go public, they argued for a higher valuation so as to receive the highest price, and thus profit, in the buyout.  So based on the highest MVE, we picked Masco as the comparable firm of choice. Using Masco’s MVE, $9838.8, and LTM EBIAT, $437.3, we solved for Masco’s P/E ratio, which was equal to 22.5. By multiplying the P/E ratio by Kohler’s LTM EBIAT (22.5 * $93.76), we projected a market value of $2,109,610,000.  To solve for estimated share price, we divided the projected market value by 7,587.89, the number of shares outstanding to obtain an estimated share price of $278,023.47. This estimate is near the $270,000 per share offer price.

We use Capital Asset Pricing Model (CAPM) approach to calculate the cost of equity. The formula of CAPM is re = rf + β × (E[RMkt] – rf).

EBITDA is a good metric to evaluate profitability, but not cash flow. EBITDA also leaves out the cash required to fund working capital and the replacement of old equipment, which can be significant. Consequently, EBITDA is often used as an accounting gimmick to dress up a company's earnings. When using this metric, it's key that investors also focus on other performance measures to make sure the company is not trying to hide something with EBITDA. ("EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization Definition | Investopedia," n.d.)

Several internal factors can influence the valuation of a company, however, in the subsequent are some factors that will assist management in protecting its shareholders. The first reason is the desire to generate profits for the company, as a profitable firm will attract investors. Secondly, the need to improve the management of a company can lead to valuation as the information can be used to spur growth. Valuation will assist in understanding some of the factors affecting the value of the company such as client relationships, financials, image, technology employees, and marketing. Proper management is implemented after identifying the issues affecting the organization’s value. Thirdly, communicating to the public accurate and current information is essential in attracting investors and maintaining transparency, which builds the company image.

It is important to know the proper technique and method of valuing a company because different people may have different ways of assessing the value; it is also important in understanding the bank’s method of appraising and valuing a company or business

He can use two methods to determine the value of the company: discount cash flow (DCF) approach and /or comparison with similar companies, which are publically traded.

in our calculations, as this company exhibited dramatic value differences to others in the sample, (likely to skew our results and prove misleading). Using the average of the revised sample field for each ratio, we inserted Torrington’s values where appropriate to generate an entity value. The findings generated two values for Torrington, 606 million and 398 million. Taking the average of these two numbers, Torrington exhibited a relative value of 502.41 million. Because of the lack of related information given in the case, and the often large differences in measures amongst competitors, different capital structures, internal management strategies, there remained many unknowns in our model. We decided it would be best to use this valuation to reaffirm our assumptions in our DCF valuation. (Please see exhibits)

The valuation process, in this case, requires us to estimate the short-run non-constant growth rate and predict future dividends. Then, we must estimate a constant long-term growth rate at which the firm is expected to grow. Generally, we assume that after a certain point of time, all firms begin to grow at a rather constant rate. Of course, the difficulty in this framework is estimating the short-term growth rate, how long the short-term growth will hold, and the long-term growth rate.

The management of JetBlue and its underwriters can also price the IPO using valuation multiples. JetBlue can employ the most current comparable data of the most appropriate competitors in terms of value in the airline industry. Valuation multiples that can be employed include, but are not limited to P/E multiples, EBIT multiples, EBITDA multiples. In this scenario, I choose to use Southwest airlines and Ryanair as the major benchmarks, because they are both considered as major low –fare airlines, and are key competitors in the United States and Europe. Nevertheless, I believe the P/E ratio is the stronger valuation tool to determine the true value of a firm. Using this method we come up with a share price of $19.32 for Southwest

Most rely on valuation heuristics involving P/E, PEG, and price-to-sales . The simplicity of using heuristic triggers dependence on valuation heuristics as an alternative for the fundamental valuation. P/E, PEG, and price-to-sales need few variables and use simple formulas. Therefore , the estimates are rather perceptive THUS subject to bias. The cause of these biases arise from weak assumption made towards P/E, PEG, and price-to-sales inputs.

Group Assignment on“Kohler (A) M&A Valuation”Submitted toINSTRUCTOR: ___________________In partial fulfillment for requirements of the courseMergers and Acquisitions (2012-2013)ByGroup K On19 November 2012

Other methods not considered are the Book Value Method and Economic Method. Book Value Method does not take in to consideration the market value of the company. Eskimo Pie true value is based on the name of the product and not the historical value of assets. Eskimo Pie generates high cash and does not need to invest in fixed assets to create growth.

We valued the company using four different methods; Net Present Value, Internal Rate of Return, Modified Internal Rate of Return and Profitability Index. We began with the Net Present Value, or NPV, calculation. NPV values an investment’s profitability based on the projected future cash inflows and outflows of the investment, discounted back to present value using the WACC. The calculations for NPV are presented in Appendix 2. We started by separating cash inflows and outflows by each year. We used Bob Prescott’s estimates for the revenue per year and related operating costs of cost of goods sold as

The methods for valuing companies can be classified in six groups: MAIN VALUATION METHODS BALANCE INCOME MIXED CASH FLOW VALUE OPTIONS SHEET STATEMENT (GOODWILL) DISCOUNTING CREATION .Book value . Multiples Classic Equity cash flow EVA Black and .Adjusted .PER Union of Dividends Economic Scholes . Sales Free cash flow Investment value European profit .Liquidation .P/E EBITDA Accounting Capital cash flow Cash value option value .Other Experts APV added Expand .Substantial multiples Abbreviated CFROI the project value income Delay the others investment Alternative uses 2.1 Balance sheets – Based methods (shareholders’Equity) These methods seek to determine the company’s value by estimating the value of its assets. These are traditionally used methods that consider that a company’s value lies basically in its balance sheet. They determine the value from a static viewpoint, which, therefore, does not take into account the company’s possible future evolution or money’s temporary value. Neither do they take into account other factors that also affect the value such as: the industry’s current situation, human resources or organization problems, contracts, etc. that do not appear in the accounting statements. Some of these methods are the following: Book value, adjusted book value,