Further Evaluation of Accounts. Dr. Clive Vlieland-Boddy FCA FCCA MBA 2009. Valuation of Businesses. Enterprise Value (EV) Net Asset Value. Earnings Multiple Values Discounted Net Present Value. EV/EBITDA = payback. Enterprise Value. Market Cap + Interest bearing debt –
FCA FCCA MBA
This is sometimes called the “takeover value”!
The net asset value is arrived at by:
Analysis of Return on
Stockholders’ Equity (ROE)
This could be because of the:
Du Pont expands the basic Formula…….
Z Score = 1.2 A + 1.4 B + 3.3 C + 0.6 D + 1.0 E
A = working capital/total assets
B = retained earnings/total assets
C = EBIT/total assets
D = market value of equity/book value of debt
E = sales/ total assets
A score of 2.7 or more represents a strong company. A score of less than 1.8 indicates high risk of failure.
Financing Growth is essential. This can be done by several ways:
Whilst this formula shows the internally generate profits will assist with growth, there are clearly other areas to achieve sustainable growth:
TOOLS AND METHODS
Strenghts, Weaknesses, Opportunities and Threats Analysis
Economic Development Scenarios
TOOLS AND METHODS
1 2 3
1 2 3
Scaning of Regional Environment
Analysis of Strenghts and Weaknesss
Analysis of Opportunities and Threats
Opportunities 1 2 3
OS Actions OxSx OxSx OxSx
OW Actions OxWx OxWx OxWx
TS Actions TxSx TxSx TxSx
TW Actions TxWx TxWx TxWx
Threats 1 2 3
The strategy shall define priorities and actions that
Identification of Regional Drivers and Regional Issues
Development Scenario 1
Development Scenario 2
Assessment of Regional Drivers and Dependency Analysis
Elaboration of Dependency Matrix
Development Scenario 3
Development Scenario 4
Total market value
Companies that consistently earn profits in excess of their required return ...
Gain a premiums to book value.
EVA EVA EVA EVA
Year 1 Year 2 Year 3 .... Year n
EVA + EVA + EVA + ... + EVA
1 + r (1 + r)2 (1 + r)3 (1 + r)n
Market value is based on establishing the
economic investment made in the company
(capital), making a best guess about what
economic profits (EVA) will happen in the future, and discounting those EVAs to the present to get market value added.
Under MM with corporate taxes, the firm’s value increases continuously as more and more debt is used.
Low, stable returns
Low, risky returns
High, stable returns
High, risky returns