1. Valuation Techniques 1.Balance sheet analysis, 2.Income statement multiples, and 3.Discounted cash flows…

2. (1) Balance sheet analysis Balance sheet Current assets Current liabilities Fixed assets Long-term liabilities Other assets Shareholders equity

3. (1) Balance sheet analysis a) Book value b)Adjusted book value c)Liquidation value

4. (2) Income statement multiples Before dealing with income statement multiples, what do we mean with income statements? An income statement is a financial statement that summarises revenues and expences (costs) Chap 17, Dorf & Byers

5. Statement of Income Net sales - Cost of goods sold =Gross profit -Other costs (payable) =EBITDA (operating profit) -Amortisation = EBIT

6. For all practical purposes R = Q * P TC = FC + VC EBITDA = R - VC - FC (payable) EBIT = R - TC

7. Measures of profitability These measures of profitability based on operations (Gross profit, PBT, PAT, EBITDA and EBIT) Other profitability measures based on assets may be Return on Investment (ROI), Return on Equity (ROE), etc.

8. (2) Income statement multiples PBT PAT EBIT EBITDA EBITDA is the most used; see Exhibit 4 for some examples of multiples in use

9. Method Identify a company with known value Calculate multiples based on various profit measures (EBIT, EBITDA…) Apply these multiples on the company under consideration

10. (3) Discounted Cash Flows “Cash flow may be defined as the sum of retained earnings minus the depreciation (amortization) provision made by a firm”. ”If a cash flow statement reveals projected negative cash in some period; it will be necesarry to plan for a capital infusion” Chap. 17, Dorf & Byers

11. (3) Discounted Cash Flows 1.Project the cash flow stream 2.Chose a discount rate 3.Determine a terminal value 4.Calculate the present value

12. Which method is best? (1)Balance sheet method? (2)Income statement multiples method? (3) Discounted cash flow method?