Breaking into wallstreet- valuation
Study online at https://quizlet.com/_8zeyae
1. Relative valua- Comparing a company to what similar companies are worth. You mostly look at
tion other public companies and recent m&a deals (precedent transactions) to estimate
what your company might be worth.
universally applicable except for when the data is spotty and/or the company you're
analyzing is unique and can't be compared to other companies
2. Intrinsic valua- estimating the net present value of its future cash flows or estimating how much
tion its assets are worth minus its liabilities
1. estimating future cash flows and discounting them back to their present value
(money today is worth more than money tomorrow) or 2. valuing the firm's assets
and assuming the firm's total value is linked to its adjusted asset value-its liabilities
in some way
3. DCF a firm's value is the sum of its discounted future cash flows and its discounted
terminal value (whatever it is worth at the end of the 5-10 year period you analyze)
use when valuing standard industries (consumer/retail, tech, healthcare,, indus-
trials)
4. net asset value or common in balance-sheet centric industries such as insurance.
liquidation model value a firm's assets and liabilities (modified total asset value-total liability value)
5. When is DCF not 1. free cash flow is not a meaningful metric
applicable? 2. the industry is asset-centric and so you're better off valuing the company's assets
and liabilities
commercial banks, insurance firms, some oil and gas companies, real estate and
investment trusts
doesn't work well for high-growth startups, companies on the brink of bankruptcy,
and other situations when growth grates are artificially high, low, or unpredictable
6. which will pro- Precedent transactions because a buyer will pay a premium to acquire 100% of
duce higher another company
numbers: pub-
lic comps or
1/7
, Breaking into wallstreet- valuation
Study online at https://quizlet.com/_8zeyae
precedent trans-
actions?
7. criteria for com- 1. geography
parable public 2. industry
companies: 3. financial (revenue or EBITDA above, below, or between certain numbers)
8. criteria for prece- 1. geography
dent transac- 2. industry
tions: 3. financial
4. TIME (multiples are only meaningful when you limit the transactions to a specific
time period) `
9. liquidation valua- You value a company's Assets, assume they are sold to repay its Liabilities, and that
tion whatever remains goes to Equity Investors and is the company's Equity Value. This
one also goes by a few other names, including the "Net Asset Value" model.
10. M&a premiums You still select Precedent Transactions but instead of calculating valuation multiples
analysis you calculate the premium that the buyer paid for the seller in each case (e.g. if
the buyer paid $30.00 per share and the seller's share price was $20.00, that was
a 50% premium)
11. Future Share You project a company's future share price based on the P / E (or other) multiple
Price Analysis of comparable companies, and then discount it back to its present value.
12. sum of the parts You split a company into different segments (e.g. Chemicals, Manufacturing, and
Consulting Services), pick different sets of Public Comps and Precedent Transac-
tions for each, assign multiples, value each division separately, and then add up
all the values at the end to determine the company's total value.
13. LBO (leveraged you assume a PE firm acquires a company and needs to achieve a certain internal
buyout) analysis rate of return and then you work backward to calculate how much they could
potentially pay to achieve that return
2/7
Study online at https://quizlet.com/_8zeyae
1. Relative valua- Comparing a company to what similar companies are worth. You mostly look at
tion other public companies and recent m&a deals (precedent transactions) to estimate
what your company might be worth.
universally applicable except for when the data is spotty and/or the company you're
analyzing is unique and can't be compared to other companies
2. Intrinsic valua- estimating the net present value of its future cash flows or estimating how much
tion its assets are worth minus its liabilities
1. estimating future cash flows and discounting them back to their present value
(money today is worth more than money tomorrow) or 2. valuing the firm's assets
and assuming the firm's total value is linked to its adjusted asset value-its liabilities
in some way
3. DCF a firm's value is the sum of its discounted future cash flows and its discounted
terminal value (whatever it is worth at the end of the 5-10 year period you analyze)
use when valuing standard industries (consumer/retail, tech, healthcare,, indus-
trials)
4. net asset value or common in balance-sheet centric industries such as insurance.
liquidation model value a firm's assets and liabilities (modified total asset value-total liability value)
5. When is DCF not 1. free cash flow is not a meaningful metric
applicable? 2. the industry is asset-centric and so you're better off valuing the company's assets
and liabilities
commercial banks, insurance firms, some oil and gas companies, real estate and
investment trusts
doesn't work well for high-growth startups, companies on the brink of bankruptcy,
and other situations when growth grates are artificially high, low, or unpredictable
6. which will pro- Precedent transactions because a buyer will pay a premium to acquire 100% of
duce higher another company
numbers: pub-
lic comps or
1/7
, Breaking into wallstreet- valuation
Study online at https://quizlet.com/_8zeyae
precedent trans-
actions?
7. criteria for com- 1. geography
parable public 2. industry
companies: 3. financial (revenue or EBITDA above, below, or between certain numbers)
8. criteria for prece- 1. geography
dent transac- 2. industry
tions: 3. financial
4. TIME (multiples are only meaningful when you limit the transactions to a specific
time period) `
9. liquidation valua- You value a company's Assets, assume they are sold to repay its Liabilities, and that
tion whatever remains goes to Equity Investors and is the company's Equity Value. This
one also goes by a few other names, including the "Net Asset Value" model.
10. M&a premiums You still select Precedent Transactions but instead of calculating valuation multiples
analysis you calculate the premium that the buyer paid for the seller in each case (e.g. if
the buyer paid $30.00 per share and the seller's share price was $20.00, that was
a 50% premium)
11. Future Share You project a company's future share price based on the P / E (or other) multiple
Price Analysis of comparable companies, and then discount it back to its present value.
12. sum of the parts You split a company into different segments (e.g. Chemicals, Manufacturing, and
Consulting Services), pick different sets of Public Comps and Precedent Transac-
tions for each, assign multiples, value each division separately, and then add up
all the values at the end to determine the company's total value.
13. LBO (leveraged you assume a PE firm acquires a company and needs to achieve a certain internal
buyout) analysis rate of return and then you work backward to calculate how much they could
potentially pay to achieve that return
2/7
