Comparable Companies Analysis: Selecting, Valuing, and Benchmarking Companies, Summaries of Statistics

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Comparable

Companies

Analysis

Chapter 1

Trading Comps

■ How They Work

■ Pros and Cons

The Process

■ Step 1: Select the Universe of Comparable Companies

■ Step 2: Locate the Necessary Financial Information

■ Step 3: Spread the Key Statistics, Ratios, and Trading Multiples

■ Step 4: Benchmark the Comparable Companies

■ Step 5: Determine Valuation

Select the Universe of

Comparable Companies

■ Study the Target

■ Identify Key Characteristics

● _____________ Profile ● ___________ Profile

■ Screen for Comparable Companies

Business Profile

■ Sector

■ Products and Services

■ Customers and End Markets

■ Distribution Channels

■ Geography

Financial Profile

■ Size

■ Profitability

■ Growth Profile

■ Return

■ Credit Profile

Select the Universe of

Comparable Companies

■ Study the Target

■ Identify Key Characteristics

■ Screen for Comparable Companies

The Process

 Step 1: Select the Universe of Comparable Companies

 Step 2: Locate the Necessary Financial Information

■ Step 3: Spread the Key Statistics, Ratios, and Trading Multiples

■ Step 4: Benchmark the Comparable Companies

■ Step 5: Determine Valuation

The Process

 Step 1: Select the Universe of Comparable Companies

 Step 2: Locate the Necessary Financial Information

 Step 3: Spread the Key Statistics, Ratios, and Trading Multiples

■ Step 4: Benchmark the Comparable Companies

■ Step 5: Determine Valuation

Calculating Value: Equity Value

■ How do we do it?

■ What is fully diluted shares outstanding?

■ How do we calculate it?

• Treasury Stock Method
• If-Converted Method
• Net Share Settlement

= price per share x fully diluted shares outstanding

basic “in the money” “in the money” = shares + options & + convertible outstanding warrants securities

Treasury Stock Method –

Options and Warrants

Assumptions Current Share Price $40. Basic Shares Outstanding 300. Exercisable Options 10. Weighted Average Exercise Price $26.

($ in millions, except per share data; shares in millions) Calculation of Fully Diluted Shares Using the TSM Option Proceeds Current Share Price Shares Repurchased form Option Proceeds

Shares from In-the-Money Options Less: Shares Repurchased from Option Proceeds Net New Shares from Options Plus: Basic Shares Outstanding Fully Diluted Shares Outstanding

Treasury Stock Method –

Options and Warrants :

Assumptions Current Share Price $25. Basic Shares Outstanding 211. Exercisable Options 8. Weighted Average Exercise Price $32.

($ in millions, except per share data; shares in millions)

Net Share Settlement Method–

Convertible Debt

Assumptions Company Current Share Price $20. Basic Shares Outstanding 100.

Convertible Security Amount Outstanding $150. Conversion Price $15.

($ in millions, except per share data; shares in millions) Calculation Using the Net Share Settlement Method Amount Outstanding Conversion Price Total Incremental Shares X Current Share Price Total Conversion Value Less: Par Value of Amount Outstanding Excess Over Par Current Share Price Incremental Shares Using NSS

Calculating Value: Enterprise Value

= Equity+ + + ̶ Value

Total Debt

Preferred Stock

Non-controlling Interests

Cash & Cash Equivalents

■ ________________ of changes in _____________________

■ Size

■ Profitability

■ Growth Profile

■ Return

■ Credit Profile

Financial Profile

■ Size

■ Sales

■ Gross Profit

■ EBITDA

■ EBIT

■ Net Income

■ Size

■ Profitability

Financial Profile

■ Gross Profit Margin

■ EBITDA and EBIT Margin

■ Net Income (Profit) Margin

Adjusting Financials:

Calculating LTM Data

Q1 Q2 Q3 Q4 Q Prior Fiscal Year Plus: Current Stub Less: Prior Stub LTM

■ LTM = Prior Fiscal Year + Current Stub – Prior Stub

Q1 Q2 Q3 Q4 Q Prior Fiscal Year Plus: Current Stub Less: Prior Stub LTM

Adjusting Financials:

Calendarization of Data

Calendar YearSales ൌ 𝑚𝑜𝑛𝑡ℎ # 𝑥 𝐹𝑌𝐴 12 𝑆𝑎𝑙𝑒𝑠 ൅ 12 െ 𝑚𝑜𝑛𝑡ℎ # 12 𝑥 𝑁𝐹𝑌 𝑆𝑎𝑙𝑒𝑠

Adjusting Financials:

Non-recurring Items and Recent Events

■ Normalize

• ________________ or sanitizing financials_

■ 10Ks and 10Qs

• MDA and footnotes

■ Key words: Non-recurring, unusual, one-time, extraordinary

■ Key causes: Write-offs, restructurings, changes in accounting principles, gains on asset sales, litigation

■ Equity Value Multiples

■ Enterprise Value Multiples

■ Sector-specific Multiples

Calculate Trading Multiples

■ Enterprise Value-to-EBITDA

■ Enterprise Value-to-EBIT

■ Enterprise Value-to-Sales

The Process

 Step 1: Select the Universe of Comparable Companies

 Step 2: Locate the Necessary Financial Information

 Step 3: Spread the Key Statistics, Ratios, and Trading Multiples

 Step 4: Benchmark the Comparable Companies

■ Step 5: Determine Valuation

The Process

 Step 1: Select the Universe of Comparable Companies

 Step 2: Locate the Necessary Financial Information

 Step 3: Spread the Key Statistics, Ratios, and Trading Multiples

 Step 4: Benchmark the Comparable Companies

 Step 5: Determine Valuation