Use this model to derive ‘target’ enterprise value multiples that are consistent with specified value drivers, including measures of growth, return on investment, margins and capital intensity. The model is based on an underlying 2-stage DCF methodology. We explain its derivation, the key assumptions and how to select appropriate value driver inputs.| The Footnotes Analyst
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Are you trying to identify what is ‘priced in’ to the current stock price or to work out a terminal value in a DCF analysis? A target valuation multiple calculation may be the answer. We present a simple interactive model. Many dismiss valuation multiples as being too simplistic; however, multiples are just DCF in disguise. We demonstrate that you can derive a price earnings ratio with the same value drivers as you would use in a discounted equity cash flow model.| The Footnotes Analyst
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Target valuation multiples that are implied by key value drivers are a great way to better understand equity valuation and how the characteristics of a company affect value. The approach incorporates the same links with underlying value drivers on which DCF is based, but in a simplified way that is more intuitive than a full DCF model. Our target multiple model can be used to estimate a deserved valuation multiple for a company, sector or index, to reverse engineer returns or growth implied b...| The Footnotes Analyst
An important input to many valuations for disputes in the Delaware Court of Chancery is a business’s terminal value; the future value of a business that reflects all the cash flows expected to occur after the period for which management or analysts typically prepare cash flow projections. In this Q&A, the article’s authors explain how the assumptions underlying such calculations affect the valuation results when employing different valuation methodologies.| QuickRead | News for the Financial Consulting Professional
A change in accounting, such as the introduction of IFRS 16, does not in itself change underlying economics. It follows that equity values derived from DCF models should also be unchanged. However, the IFRS 16 lease accounting changes seem to be creating some confusion. We explain how to correctly adjust your DCF calculations and provide an interactive pre and post lease capitalisation model to illustrate. IFRS 16 makes DCF analysis easier and less prone to error; leaving your model based on ...| The Footnotes Analyst
Valuation methods based on enterprise value have become the benchmark in equity valuation. Most of you will have analysed equity investments using valuation multiples based on a market enterprise value or have applied absolute valuation methods to derive a target enterprise value. In simplistic terms enterprise value is market capitalisation plus net debt; but is that good enough? In many situations we think not. We review the key building blocks of enterprise value to assist you in deriving ...| The Footnotes Analyst