Presentation on theme: "Equity Valuation. Brainteaser There are 30 hyenas and 1 pig, and all animals are logical If a hyena eats a pig, a hyena will become a pig A pig can only."— Presentation transcript:
Brainteaser There are 30 hyenas and 1 pig, and all animals are logical If a hyena eats a pig, a hyena will become a pig A pig can only eaten by 1 hyena Hyena preference: die < eat grass < eat pig Will the pig get eaten? What if there are 31 hyenas?
Quality of business Economic Moats Pricing power
Cost structure High fixed cost? Brand value – What is the difference between LV’s brand and Lego’s brand? If you can own 1 of them, which do you own?
Competitive Landscape Is the business as efficient as it can be? Does the business need to be efficient in the first place?
Before you start doing valuation Getting to the right numbers Proforma adjustments to get normalized numbers – 1-time costs / gains Litigation Selling a business / buying one Gain from the financial markets (commodity hedge)
Valuation Multiples EBITDA – 6x EBIT – 8x Cash Earnings – 10x When do you use what?
How much would you pay? To buy my gumball machine – Selling 100 gumballs in a restaurant everyday for $1.20 per gumball – Cost you $0.20 per gumball What if the restaurant gives you an exclusive agreement for your machine? What if instead of gumballs I am selling Harry Potter figurines in a mall? (same amount of sales and cost per toy as a gumball)
How much would you pay? To buy my local newspaper business – 1,000 families in the area, most of them are in the auto manufacture business and live within 3 miles from each other – I sell 500 copies of physical newspapers every morning for $1 profit
How much would you pay? I now run a motel around a mining town that mines coal I run at full occupancy, all my 100 rooms are used by miners every day and their firm pays for it. The mines in the area are mostly under construction at this point, experts expect the mines to operate for at least 50 years
Other valuation methods Asset build-up / Liquidation – The sum of all assets on the balance sheet today – The firm should be worth at least the value of all assets, if not more Run-off value – Some assets generate value based on contracts (e.g. a patent license agreement) – A firm should be worth at least the sum of that run-off value