Subject: Valuation Concepts and Method

Can you show me a simple example of a problem with illustration of step by step answer and explanation of this, Comparable company Analysis thanks you so much.

YOU GAVE ME AN EXAMPLE OFTHIS AS FOLLOWS:

Here is the solution:

You have been asked to value XYZCorporation using the Comparable Company Analysis method. You have identified three companies that are similar to XYZ Corporation in terms of their size, industry, growth prospects, and risk profile. The key financial ratios for the three comparable companies and XYZ Corporation are provided in the table below:

Company

P/E Ratio

EV/EBITDA Ratio

P/BV Ratio

A B C

15.0 20.0 18.0

10.0 12.0 11.0

2.5 3.0 2.8

XYZ

Assuming that the average P/E, EV/EBITDA, and P/BV ratios for the three comparable companies are representative of the market, what is the implied valuation of XYZ Corporation?

Solution

Step 1: Calculate the average ratios for the three comparable companies.

Average P/E Ratio = (15.0 + 20.0 + 18.0) / 3 = 17.7

Average EV/EBITDA Ratio = (10.0 + 12.0 + 11.0) / 3 = 11.0

Average P/BV Ratio = (2.5 + 3.0 + 2.8) / 3 = 2.77

Step 2: Apply the average ratios to the corresponding financial metrics of XYZ Corporation.

Implied P/E Ratio = Average P/E Ratio x XYZ Corporation's Earnings per Share (EPS)

Implied EV/EBITDA Ratio = Average EV/EBITDA Ratio x XYZ Corporation's EBITDA

Implied P/BV Ratio = Average P/BV Ratio x XYZ Corporation's Book Value per Share

Since the financial metrics for XYZ Corporation are not provided in the table, we cannot calculate the implied valuation directly. However, we can make some assumptions based on industry benchmarks and use them to estimate the financial metrics for XYZ Corporation.

Assuming that the average P/E ratio for the industry is 20, and the EPS for XYZ Corporation is $2.00, we can calculate the implied market capitalization as follows:

Market Capitalization = Implied P/E Ratio x EPS

Market Capitalization = 20 x $2.00 = $40.00

Assuming that the EV/EBITDA ratio for the industry is 12, and the EBITDA for XYZ Corporation is $5.00 million, we can calculate the implied enterprise value as follows:

Enterprise Value= Implied V_ BITDARatios x EBITDA

E

EnterpriseValue=ImpliedEVEBITDARatioxEBITDA Enterprise Value = 12 x $5.00 million = $60.00 million

Assuming that the P/BV ratio for the industry is 3, and the book value per share for XYZ Corporation is $10.00, we can calculate the implied equity value as follows:

Equity Value = Implied P/BV Ratio x Book Value per Share Equity Value = 3 x $10.00 = $30.00 Step

3: Calculate the implied valuation of XYZ Corporation

Based on the above calculations, we can estimate the implied valuation of XYZ Corporation as follows:

Implied Valuation = Market Capitalization + Net Debt + Minority Interest + Preferred Stock + Equity Value

Implied Valuation = $40.00 million + $10.00 million - $5.00 million + $0.00 + $30.00 million Implied

QUESTIONS:

WHY? $5.00 million IS LESS NOT PLUS AND HOW DO YOU GET THE $30.00 million IMPLIED IF $40.00 million + $10.00 million- $5.00 million + $0.00 + $30.00 million Implied

= IS THE TOTAL IS $65.00 million CAN YOU KINDLY BROADEN ME THE RIGHT ANSWERS? ME AND MY TEACHER GOT CONFUSE WHY MINORITY INTEREST IN LESS $5.00 million IS THAT SUPPOSEDLY LESS OR ADD MAY TEACHER SAID THAT IS SO CONFUSING I HOPE YOU COULD EXPLAIN TO ME MORE CONCISE, RIGHT AND MUCH BROADEN THANKS MUCH AGAIN