1 

i) if the share value increases by 5% every year

Value of shares in 20 years = 10,000(1+0.05)²⁰

= £ 26,532.98

ii) if the share value increases by 15% every year

Value of shares in 20 years = 10,000(1+0.15)²⁰

=£ 164,665.37

2 

A. USING the below Assumptions & Multiples comparable companies are selected

When doing a Comparable company analysis valuation, the analyst can choose to use either trailing

(historical) performance metrics, or

future (forecast) performance metrics.

Note that many analyses will look at both historical and future metrics.)

In general future metrics are preferred, but one needs to be careful with this. For example, projected EBITDA and projected Earnings/EPS are subject to all kinds of potential pitfalls associated with forecasting. The forecast numbers may end up being significantly off.

To quickly recap on key assumptions and projections that we need to make when performing a Comparable company analysis analysis:

· Peer Universe: A selection of competitor/similar companies used to determine a benchmark valuation.

· EBITDA: Historical & projected Earnings before Interest, Taxes, Depreciation & Amortization.

· EPS: Historical & projected Earnings Per Share.

There are various types of multiples that can be used in a Comparable company analysis analysis. In general, multiples can be classified in two broad categories: Operating multiples and Equity multiples. Operating multiples refer to the operating results of the business as a whole while Equity multiples refer to the value created from the company that is available to equity/shareholders.

Typical multiples for Comparable company analysis include:

· EV/Sales: The Enterprise value of the company divided by Sales/Revenue (Operating multiple)

· EV/EBITDA: The Enterprise value of the company divided by EBITDA (Operating multiple)

· P/E: Price/Earnings ratio for a company (Equity multiple). This is either calculated as Share Price ÷ EPS, or Market Capitalization ÷ Earnings (they are mathematically equivalent).

· P/B: Price/Book ratio for a company (Equity multiple). This is either calculated as Share Price ÷ Book Value per Share, or Market Capitalization ÷ Shareholders’ Equity (they are mathematically equivalent).

· P/(Levered) Cash Flow: Price/Cash Flow ratio for a company (Equity multiple). This is either calculated as Share Price ÷ Levered Cash Flow per Share, or Market Capitalization ÷ Levered Cash Flow (they are mathematically equivalent).

 

B. USING the below Steps comparable companies are grouped as peer

Steps to remember for executing a comparable company analysis

1. Select a Peer Universe: Pick a group of competitor/similar companies with comparable industries and fundamental characteristics.

2. Calculate Market Capitalization: It is equal to Share price × Number of Shares Outstanding.

3. Calculate Enterprise Value: Market Capitalization + Debt + Preferred Stock + Minority Interest (less common) – Cash.

4. Historical & Projected Financials: Use historical financials from filings and projections from management, sell-side equity analysts, etc.

5. Spread Multiples: Using Market Capitalization, Enterprise Value and historical/projected financials, spread (i.e., calculate) EV/EBITDA and P/E multiples.

6. Value Target Company: Pick the appropriate benchmark valuation multiple for the peer group, and value the target company based on that multiple. Typically, an average or median is used.