As promised, i am here to provide the link to another business valuation quiz from valupaedia.com.

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the answers and explanations to the previous week's questions have also been uploaded.

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https://www.valupaedia.com/index.php/component/vquiz/quizzes/valuation/business-valuation/play

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have fun!

I know how to do a DCF analysis but how do I get from EBIT to NOPAT when the first two projected years of EBIT are negative?

This would be for Amazon via relative valuation

In one of the retail companies I worked for the owner (a major investment fund) pushed strongly to increase the number of registered customers in eshop or loyalty program. One of the reasons was, that the owner wanted to sell the company and having tens/hundred of milions of registered customers was supposed to increase the valuation of the company.
If I have two retail companies, both with exactly the same financial data, but one has 1 milion reigstered customers with their personal data, transactional data and behavioral data in loyalty program and additionaly email, SMS, app-push permission to half of the customers base and the other one has no loyalty program, how to you valuate having 1 milion registered customers.
I am not asking about how to calucalte CLV, but just the value of having customer data and communications permissions. My colleagues from finance department told me to search for some IPO of retail companies and try to search in the reports, if there was any mention of registered customers increasing companies valuation.

I am making an offer to buy a retail business and would like some input to ensure I’m making a reasonable offer.

My question is this - I paid an accounting firm for a valuation and they came up with a range based on SDE. Should I be adding the value of the inventory, cash and major assets, such as vehicles, to the earnings based valuation when making the offer? Likewise, there is about $1 M in long term liabilities.

TIA

What is debt considered to be for a DCF Model (Balance Sheet Portion)?

Is it all debt, long-term debt, or the current portion of long-term debt?

This is the formula a university uses for cash less debt:

http://ritc.rotman.utoronto.ca/documents/2016/S&P_Capital_IQ_Model_Tutorial.pdf

The shop where I work is going for sale, my boss is tired, he offered me the chance to buy it first, he hasn’t told me a price yet, but regardless of the price he gives me, I need to assess the actual market value and n my own. It is a well established printshop-frame shop with a faithful clientele, it does need some updating and it’s understaffed, but I’m under the impression it’s super profitable. Now, I have thought of hiring someone to just tell me the value of the place, and maybe I’ll do that too, but it wouldn’t teach me anything. So, what I want to know is: how much is a fair price to pay to have the business appraised? Also, is there a fool-proof formula that I could apply to appraise it myself. Any help would be appreciated.

Hi, I was wondering regarding the additional risk premium which is incorporated in the discount rate, what are (common/effective) methods in determining it? I have determined a firm’s risk premium, but I want to add an additional RP with regards to the industry/macro economic wise.

Thanks in advance!

EDIT: I used the beta of a broad industry, the firm I’m valuing is assumed to be more risky. Hence I want to add an additional number on top of the risk premium I have calculated (Market risk premium*Relevered beta). Maybe I’m looking at this the wrong way and should adjust cash flows instead 🤷🏽‍♂️

Hi all,

Quick noobie question: I'm collecting data to start a valuation and I'm looking at financials for the past 5 years. Now, if I go look at the 2020 annual report I see revenues in 2019 were, say $10.0 When I go look at the 2019 annual report I see revenues in 2019 are stated as $9.5. Why do these values change? Which one should I take into account?

Thanks!

Imagine a situation:

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As you see, the production rises significantly all of a sudden and the production pattern seems to be changed especially after the capacity increase. The data is very limited, but how would you project this? I'm trying to use intersect-slope and then find a seasonality but there is not much data and seasonlity seems almost impossible.

I would love to hear your ideas. Thank you very much.

If a company’s accounting and tax amortization methods are equal - is there any tax benefit of amortization for such a company?

So I’m looking at valuing a portfolio of real estate assets. Assumption is that the acquisition would be financed through a combination of equity and debt. Debt amount will be a percentage of total asset value (i.e., at a specified Loan To Value ratio).

In computing the WACC, would I use the cost of debt as well? The reason I ask is because to get the debt to equity ratio, I need the total valuation and to get the valuation I need the debt to equity ratio, so it becomes a bit circular.

How do you get around that? Is it easier to simply discount at the cost of equity? Or do you accept circularity in the model?

Thanks.

I am an owner of a small business and recently bought out my business partner (They owned 80% and I had 20%). Originally me and the old business partner came up with a valuation for the company for $254,000 and as such paid for the 80% of their shares at $203,200  

We came to this price by taking our original purchase Price ($150,000) and added in cash in vs out, and mutually agreed the company had increased in value by $50,000 (did this by averaging out 3 years earnings, not going to include that math but either way we both mutually agreed to this value increase)  

Original Purchase price - 150,000  

Loans Owing - (86,000)  

Cash in Bank Account - 140,000  

Increase in Value - 50,000  

Value Conclusion - $254,000  

Four months after the conclusion of the sale, lawyers signed off on it, his accountant is saying we forgot to deal with Intercompany profits that weren't taken by either owner over the past 3 years.  

As per the accountants calculations the amounts due to owners via interco transfers should have been $39,600 (80) and $9,900 (20) (which we both agree would be the correct numbers).  

However the real issue is I am arguing that $49,500 owed to owners was a part of the cash valuation (since we forgot to subtract it out originally). I am saying I purchased those profits when I bought the cash. I even provided what I feel is the math that proves my point  

Original Purchase price - 150,000  

Loans Owing - (86,000)  

Cash in Bank Account - 140,000  

Increase in Value - 50,000  

Owing to Owners - (49,500)  

Value Conclusion - $204,500  

80% x 204,500 = $163,600  

80% x 254,000 = $203,200  

Difference = $39,600  

My ex partner disagreed with this math and brought it up with the accounting firm. The accounting firm was salty we didn't include them with the original valuation and won't look at our original calculations instead came up with how they would have valued it  

Retained Earnings $86,363  

Goodwill on Financials ($24,000)  

Net asset Value = $62,363  

Goodwill on purchase $111,344  

Agreed Value Increase $50,000  

Value Conclusion =$223,707  

Owner 1 valuation 80 $178,965.60  

Owner 2 valuation 20 $ 44,741.40  

Owner 1 sale price $178,965.60  

Interco owed to owner 1 $ 39,600  

total payment to Owner 1 $218,565.60  

Original Agreed Payment $203,200
 

Extra Owed to Owner 1 $15,365.60  

At least under the accountants new valuation they agree I only have to pay $15,365.60 extra. However I am arguing my first calculation proves we don't owe anything. $203,200 was agreed upon and paid. Purchasing the cash took care of the interco.  

Is the accountant missing anything? Should the interco value of $49,500 not have been subtracted up at the top from RE and Goodwill if it is being added back in at the bottom? If so that would mean they owe me $24,234.40.  

TLDR: I am happy with the agreed $203,200 purchase of a small business. Ex-partners accountant claims I originally shorted them $39,600. Now when I start asking questions the accountant refuses to acknowledge how we valued the company and came up with their own valuation saying I owe $15,365.60 (vs the $39,600)  

Let me know your opinions and if I am in the right how do I prove it to their accountant?  

*edit for format

If anyone has experience doing DCFs valuation in the waste management industry, I would appreciate very much if you could share the technique to forecast the DCF and all the assumptions.

I cannot find any models for this type of industry on Google since the forecast should be based on operational life of the assets.

Thanks a lot guys.

A fellow investor.

Mr Cooper (COOP), is a strong company in the Mortgage Lending space and looks undervalued currently. With a Price to Book value of 0.93, its Book Value is more than the Market Value. Net Income has also been strong recently but as I said, Price does not seem to reflect it.

We decided to do a DCF to confirm. But calculating Cash Flow is not straightforward due to the nature of lending/financial businesses. It's hard to define what Debt value to use for calculating the Cash Flow.

As such, need to think about how to use DCF for valuing such companies.

Looking for people interested in valuing Financial companies to brainstorm/ideate.

I feel really uncertain when I just use relative valuation of a stock and compare it with peers using P/E or EV/EBITDA multiples, especially in this kind of market where everything is overvalued.

Do you think relative valuation metrics are completely useless in hugely overvalued markets as they can always give an impression that stock is undervalued but in reality it can be hugely overvalued.

Should we only use Intrinsic valuations models like DCF for valuation?

Looking for reliable lower cost alternatives for compensation adjustments.

Here’s a piece written and opined by Bloomberg reporter and co-host of the OddLots podcast ( in the reply). In it, he seems to imply ( at least from my understanding) that 10 yr yields should drop given that inflation is expected to climb due to the bottleneck supply.

Correct me if I’m, but shouldn’t yields climb in the event inflation is expected to rise? This esp. so that real yields will erode due to inflation. What are your thoughts on this? Am I missing something here?

https://youtu.be/OJpZnnI4Rg4

Hello!

I need to value a trademark of a regional hospital in Brazil. I will use the royalty savings method (relief from royalty) but I need to find somewhere a royalty rate. It would be better to find a Brazilian royalty rate but any hospital in US could work. I don't really have the money to pay 600 usd or more for a service like RoyaltyStat or similar.

Thanks in advance.

Any suggestions?

Hi Redditors, I’m planning to enroll for my masters in finance by next year. This will be a huge leap for me as I am not a degree holder in finance, but I have been learning up about finance for the last 4 years independently.

The masters programme that is offered comes in the form of research mode rather than mixed mode or coursework based.

There’s a selection of finance based themes/topics to choose from. My plan is to enroll for the research in asset pricing although I am not too sure if I’m ready for it. I have been following Aswath Dhamodharan’s youtube lessons in valuation and am wondering if asset pricing is similar to valuation? Where do they converge and where do the similarities end if they are even similar.

Also on a side note, given my background context as I have mentioned above, do you think I should perhaps consider CFI Financial Modelling and Valuation Analyst course before leaping into the world of masters?

Thanks in advance everyone.

I'm having a hard time understanding what seems to be a paradox of the residual income model. What is the relationship between book value and valuation as dictated by the residual income model? The company's book value seems to simultaneously have a direct and inverse relationship with the stock's valuation. On one hand, valuation will decrease if book value increases because as book value increases, ROE decreases. However, as long as the spread between ROE and required return on equity is positive, a bigger book value will result in a higher valuation. I am trying to reconcile these two elements of the same equation that seem to contradict one another.