Valuation Analysis

In: Business and Management

Submitted By vickynan
Words 1996
Pages 8
Session 2

Week 2 - FNCE 90062 Capstone Studies in Finance

Session 2

Comparator Analysis


An opinion of value

• A valuation is a well-founded opinion of value. It should be based on market evidence, but it is not a market result itself.

• In some cases, the asset is not traded in an active market or exchange. e.g., privately held companies, real estate. Here, the concept of value may be different, depending on the type of valuation. (e.g., valuation for tax vs valuation for listing) • In other cases, the asset is traded in an active market or exchange. Here, you must provide a reason why the market value does to represent the ‘correct value’ for the purchaser. e.g., listed companies

Valuation methods

Method Comparable Companies DCF

Cash Flows Accounting

Risk Adjustment Prevailing market evidence

Expected CFs Expected CFs

RADR Separate RADR for different classes of CFs Separate RADR for different risk classes of CFs Risk free


Adjusted DCF

Sum of the Parts

Expected CFs

Certainty Equivalence

Risk adjusted


Steps in Comparable Company Analysis

1. Select Universe of Comparable Companies 2. Locate Necessary Financial Information 3. Determine Key Statistics, Ratios and Trading Multiples 4. Benchmark the Comparable Companies 5. Determine Valuations

Step 1: Select Universe of Comparable Companies

• What is a comparable company?
You are looking for a company that similar to the company being valued in an number of dimensions and for which you have an unbiased estimate of value. You will adjust the unbiased estimate of value for the comparable company to reflect differences between the company being valued and the comparable company and use this as a basis for your valuation.

Step 1: Select Universe of Comparable Companies

• Key words
– Similar
• There is no such thing as…...

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