LLC Valuations Questions and Answer

LLC Valuations Questions and Answer Walk me from Revenue to EBITDA. Start with revenue and subtract cogs which gives me gross profit, and then from there I subtract my operating expenses which gives me my operating income. After that I add in additional profit which gives me my EBIT, and then from there I add in depreciation and amoritization From a high level, what are the two types of valuation? Relative valuation and intrinsic valuation What is a relative valuation? Comparing companies to other comparable businesses based on metrics like P/E, P/B, P/S, and EV/EBITDA What is intrinsic valuation? seeks to value the company on its own by forecasting future free cashflow of a business What is the formula for enterprise value? EV = market value of a stock + debt + minority interest - cash and investments What is enterprise value? measure of a company's value What is usually greater market value or book value? Why? Market value is greater because it captures profitability, intangibles, and future growth prospects What is market value? The value of a company according to the stock market Would EV/earnings be a good ratio to use for comparable analysis? No What is the formula for unlevered free cash flow? EBIT(1- tax rate) + deppreciation and amortization - change in net working capitol - capitol expenditures How do you find the percentage of debt/equity ? market value of debt/ (market value of debt + market value of equity) What does CAPM stand for and what is the formula? Capital asset pricing model. required return on equity = risk free rate + stock beta ( market return - risk free rate) What does WACC stand for and what is the formula? Weighted average cost of capitol. WACC = cost of equity percentage of equity + cost of debt percentage of debt (1- tax rate) What is a disadvantage of using a DCF compared to a comparable analysis? The DCF relies on assumptions and opinions while comparable analysis relies on data Walk me through a DCF. 1. Project cash flow for a period (5-10 years) 2. Project cash flows for the terminal value 3. Discount all cash flow for using WACC (unlevered), but if levered use CAPM 4. Sum all discounted cash flows to get EV 5. Subtract out net debt ( total debt - cash) to arrive at equity value !skip if levered! 6. Divide equity by diluted shares outstanding to get value per share What is unlevered cash flow a company's cash flow before it has met its financial obligations what is levered cash flow the amount of cash a business has after it has met its financial obligations. capitol expenditure forumula net increase in PPNE + Depreciation expense Gordon growth method Terminal Value = Terminal Year FCF * (1 + growth rate) / (Discount Rate - Growth Rate) Exit Multiple Method EV/EBITDA, EV/EBIT, P/E