Comments for Financial Ratio Analysis http://www.financialratioanalysis.net Thu, 09 Dec 2010 01:18:28 +0000 hourly 1 http://wordpress.org/?v=3.0.5 Comment on Business Valuation – Why the Asking Price of a Business Can Differ From the Actual Purchase Price by Gary Kane http://www.financialratioanalysis.net/business-valuation/business-valuation-why-the-asking-price-of-a-business-can-differ-from-the-actual-purchase-price/comment-page-1/#comment-442 Gary Kane Thu, 09 Dec 2010 01:18:28 +0000 http://www.financialratioanalysis.net/business-valuation/business-valuation-why-the-asking-price-of-a-business-can-differ-from-the-actual-purchase-price/#comment-442 Great post. As the Founder & CEO of a New York based Business Brokerage firm, I would like to add there are actually 3 ways to value a business or in addition to the one you mentioned you could use comparables and/or an asset approach. I would suggest using all 3. Gary Kane <a>www.chimerastrategies.com</a> Great post. As the Founder & CEO of a New York based Business Brokerage firm, I would like to add there are actually 3 ways to value a business or in addition to the one you mentioned you could use comparables and/or an asset approach. I would suggest using all 3.

Gary Kane
http://www.chimerastrategies.com

]]> Comment on Day Spa Business Plan Sample – Financial Model Needs by jodie_microsoft_smb http://www.financialratioanalysis.net/financial-modeling/day-spa-business-plan-sample-financial-model-needs/comment-page-1/#comment-368 jodie_microsoft_smb Tue, 07 Dec 2010 17:42:25 +0000 http://www.financialratioanalysis.net/financial-modeling/day-spa-business-plan-sample-financial-model-needs/#comment-368 You don’t have to pay for a business plan if you do it yourself. You can get free information about writing a business plan and the option to download a sample plan and templates from the Microsoft Small Business Center. This link will give you more details: http://smb.ms/Outreach9RbuSP Regards, Jodi E. Microsoft SMB Outreach Team msftoft@microsoft.com You don’t have to pay for a business plan if you do it yourself. You can get free information about writing a business plan and the option to download a sample plan and templates from the Microsoft Small Business Center. This link will give you more details: http://smb.ms/Outreach9RbuSP

Regards,
Jodi E.
Microsoft SMB Outreach Team
msftoft@microsoft.com

]]> Comment on Investment and Business Valuation with Economic Value Added Calculation by Kasper Oldby http://www.financialratioanalysis.net/business-valuation/investment-and-business-valuation-with-economic-value-added-calculation/comment-page-1/#comment-362 Kasper Oldby Sat, 27 Nov 2010 13:58:02 +0000 http://www.financialratioanalysis.net/business-valuation/investment-and-business-valuation-with-economic-value-added-calculation/#comment-362 Valuation theory There are two fundamental ways to view the valuation, either the company and consequently the valuation is based on the assumption of going concern or in a liquidation scenario. These two approaches can be assessed using four types of valuation methods: Net Present Value - based valuation methods Relative - based valuation methods Liquidation - based valuation methods Option - based valuation methods In the following - a brief explanation of the most commonly applied methods in business valuation. Trading multiples The Trading multiples methodology is a comparison to the stock market pricing of comparable listed companies ("peers") with similar characteristics (from an investor's perspective). The debt free price (EV) of each listed peer is compared to that peer's earnings level (e.g. EBIT) in a given year (expected or realised), hence the "multiple" or ratio. Having determined a relevant multiple, such multiple can be multiplied by the relevant target object's expected earnings to arrive at an indication of the EV of the target. Transaction multiples The Transaction multiples methodology is a comparison to prices paid in historical acquisitions of companies with similar characteristics (from an investor's perspective). The debt free price (EV) paid is compared to the latest reported earnings (e.g. EBIT) of such acquired companies, hence the "multiple" or ratio. The methodology is based on historical and near term profitability and does not account for future changes in profitability. Discounted Cash Flow (DCF) DCF valuation reflects the present value of the expected future free cash flows to the firm given certain assumptions regarding discount rate (WACC), state of the company in the terminal period etc. Economic Value Added (EVA) EVA is a measure of by how much a company's returns exceed the cost of capital. It therefore tells one how much wealth the company has created for providers of capital. Even though the methods are different the resulting valuation is identical to the DCF. Leveraged Buyout (LBO) LBO valuation reflects the EV based on what a financial sponsor/private equity buyer is willing to pay for the company given certain assumptions regarding financial leverage, exit value, holding period and IRR requirements etc. Conclusion The above applied valuation methods would indicate the most likely valuation range of any given company. Valuation theory
There are two fundamental ways to view the valuation, either the company and consequently the valuation is based on the assumption of going concern or in a liquidation scenario. These two approaches can be assessed using four types of valuation methods:

Net Present Value – based valuation methods
Relative – based valuation methods
Liquidation – based valuation methods
Option – based valuation methods
In the following – a brief explanation of the most commonly applied methods in business valuation.

Trading multiples
The Trading multiples methodology is a comparison to the stock market pricing of comparable listed companies (“peers”) with similar characteristics (from an investor’s perspective).

The debt free price (EV) of each listed peer is compared to that peer’s earnings level (e.g. EBIT) in a given year (expected or realised), hence the “multiple” or ratio. Having determined a relevant multiple, such multiple can be multiplied by the relevant target object’s expected earnings to arrive at an indication of the EV of the target.

Transaction multiples
The Transaction multiples methodology is a comparison to prices paid in historical acquisitions of companies with similar characteristics (from an investor’s perspective).

The debt free price (EV) paid is compared to the latest reported earnings (e.g. EBIT) of such acquired companies, hence the “multiple” or ratio. The methodology is based on historical and near term profitability and does not account for future changes in profitability.

Discounted Cash Flow (DCF)
DCF valuation reflects the present value of the expected future free cash flows to the firm given certain assumptions regarding discount rate (WACC), state of the company in the terminal period etc.

Economic Value Added (EVA)
EVA is a measure of by how much a company’s returns exceed the cost of capital. It therefore tells one how much wealth the company has created for providers of capital. Even though the methods are different the resulting valuation is identical to the DCF.

Leveraged Buyout (LBO)
LBO valuation reflects the EV based on what a financial sponsor/private equity buyer is willing to pay for the company given certain assumptions regarding financial leverage, exit value, holding period and IRR requirements etc.

Conclusion
The above applied valuation methods would indicate the most likely valuation range of any given company.

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