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Method

Description

Comments

Calculates a "fully distributed" trading value Comparable Companies Analysis Estimates a company's implied value in the public equity markets through an analysis of similar companies' trading and operating metrics Apply multiples derived from similar or "comparable" publicly traded companies to a company's operating metrics (recognizing that no two companies are exactly alike)

Reliability depends on the level of comparability of the selected publicly traded companies Does not include a "control premium" (though a change of control premium may be applied to the equity value to estimate a private market value)

Precedent Transaction Analysis

Provides a private market benchmark in a change of control scenario Apply multiples derived from similar or comparable precedent M&A transactions to a company's operating metrics Includes a control premium

Reliability depends on the number of precedent transactions and their levels of comparability Market cycles and volatility may affect market historical valuation levels Individual buyer synergies and structure of transaction will also impact multiples

DCF Analysis

Project the company's future unlevered cash flows and calculate the present value of those cash flows and the terminal value using an appropriate cost of capital and terminal value methodology

This analysis is heavily dependent on cash flow and growth characteristics of the company and the terminal value assumptions Appropriate capital structure reflected in valuation analysis through discount rate Typically the highest result of the three methods

LBO Analysis

Determines the range of prices that a financial buyer would be willing to pay for a company based on target rates of return to equity (IRRs) and a leveraged capital structure

This analysis is heavily dependent on the cash flow profile of the asset, its leveragability, and the exit value assumptions

SOTP Analysis

Provides a range of values for a company's equity by summing the values of its individual operating segments to arrive as the total firm value Apply multiples derived from comparable publicly traded companies to the operating metrics of each operating unit Often used to make a case for the divestiture of one or more businesses

Reliability depends on the level of comparability of the selected publicly traded companies Does not value synergies of the combined business Impossible when financial metrics of operating subsidiaries or divisions are not available