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Lawyer Appraiser
Accountant
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Price
Earnings
Known Company
(Comparable)
Unknown Company
(Target)
$20,000,000
$1,000,000
?
$500,000
= =
Comparable Transactions (numbers in millions)
Company Date EBITDA Sale Price Multiple
ABC 1/1/2013 10 99 9.9
DEF 2/1/2013 ...
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Free Cash Flow Growth
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2.00
4.00
6.00
8.00
10.00
12.00
2010 2011 2012 2013 2014 2015 2016
Year
CashFlow(inmillions)
CapEX...
Year Discount
Rate
2010 2011 2012 2013 2014 2015 2016 NPV
Free Cash
Flow
0% 6.0 6.3 6.7 7.1 7.5 8.0 8.5 50.3
12% 6.0 5.6 5...
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TARGET COMPANY: Motorcycle Sales
METRIC: 3x Sales
COMPARABLE: Harley Davidson
Reported Revenue
Actual Revenue
Overstatemen...
Effect of Revenue Overstatement on P/Sales Valuation
$10,000 $9,000
$1,000
$30,000
$27,000
$3,000
Reported
Revenue
Actual
...
TARGET COMPANY: Motorcycle Seller
METRIC: 20x Earnings
COMPARABLE: Harley Davidson
Reported Revenue
Actual Revenue
Reporte...
Revenue Overstatement in P/E Valuation
$10,000
$9,000
$1,000
$30,000
$10,000
$20,000
Reported
Revenue
Actual
Revenue
Reven...
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Revenue
Cost of Goods Sold
Gross Profit
Administrative Expenses
Net Income
Automobile Leases
Aircraft Costs
Lease for Shar...
Showing Value of Add-backs
$30,000,000
$40,000,000
Value without Add-Backs Value with Add-Backs
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Great Expectations: A Guide to Satisfying Clients through Accurate Valuation and Financial Accounting
Great Expectations: A Guide to Satisfying Clients through Accurate Valuation and Financial Accounting
Great Expectations: A Guide to Satisfying Clients through Accurate Valuation and Financial Accounting
Great Expectations: A Guide to Satisfying Clients through Accurate Valuation and Financial Accounting
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Great Expectations: A Guide to Satisfying Clients through Accurate Valuation and Financial Accounting

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Valuation is critical in a business acquisition. The acquisition agreement needs to support valuation assumptions and appropriately allocate risks between the parties with respect to these calculations. Professionals framing these agreements need to communicate or the risk allocation for key valuation assumptions may not comply with the parties’ expectations. This presentation will be a guide for fostering that collaboration.

Published in: Business, Automotive
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Great Expectations: A Guide to Satisfying Clients through Accurate Valuation and Financial Accounting

  1. 1.  
  2. 2.  • • 
  3. 3. Lawyer Appraiser Accountant
  4. 4.   
  5. 5.    
  6. 6.  
  7. 7.   • • •  
  8. 8. Price Earnings Known Company (Comparable) Unknown Company (Target) $20,000,000 $1,000,000 ? $500,000 = =
  9. 9. Comparable Transactions (numbers in millions) Company Date EBITDA Sale Price Multiple ABC 1/1/2013 10 99 9.9 DEF 2/1/2013 6 45 7.5 GHI 3/1/2013 5 35 7 JKL 4/1/2013 15 150 10 Average Multiple: 8.6
  10. 10.  • • • 
  11. 11.   • • •  
  12. 12.  
  13. 13. Free Cash Flow Growth - 2.00 4.00 6.00 8.00 10.00 12.00 2010 2011 2012 2013 2014 2015 2016 Year CashFlow(inmillions) CapEX Cash Flow
  14. 14. Year Discount Rate 2010 2011 2012 2013 2014 2015 2016 NPV Free Cash Flow 0% 6.0 6.3 6.7 7.1 7.5 8.0 8.5 50.3 12% 6.0 5.6 5.3 5.0 4.8 4.5 4.3 35.8 14% 6.0 5.5 5.1 4.8 4.4 4.1 3.8 34.1 16% 6.0 5.4 5.0 4.5 4.1 3.8 3.4 32.5
  15. 15.  • •
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  18. 18.   • • •  • • •
  19. 19.    • •
  20. 20.  • •  • •
  21. 21. TARGET COMPANY: Motorcycle Sales METRIC: 3x Sales COMPARABLE: Harley Davidson Reported Revenue Actual Revenue Overstatement Reported Valuation Actual Valuation Overstatement $10,000 $9,000 $1,000 $30,000 $27,000 $3,000
  22. 22. Effect of Revenue Overstatement on P/Sales Valuation $10,000 $9,000 $1,000 $30,000 $27,000 $3,000 Reported Revenue Actual Revenue Overstatement Reported Valuation Actual Valuation Overstatement DollarValue(in1,000s)
  23. 23. TARGET COMPANY: Motorcycle Seller METRIC: 20x Earnings COMPARABLE: Harley Davidson Reported Revenue Actual Revenue Reported Earnings Actual Earnings Revenue Overstatement Reported Valuation Actual Valuation Overstatement $10,000 $9,000 $1,500 $500 $1,000 $30,000 $10,000 $20,000
  24. 24. Revenue Overstatement in P/E Valuation $10,000 $9,000 $1,000 $30,000 $10,000 $20,000 Reported Revenue Actual Revenue Revenue Overstatement Reported Valuation Actual Valuation Overstatement DollarValues(1,000s)
  25. 25.  • • •  • •
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  32. 32.   
  33. 33. Revenue Cost of Goods Sold Gross Profit Administrative Expenses Net Income Automobile Leases Aircraft Costs Lease for Shared Office Net Savings to Buyer 20x Earnings Value Increase Value without Add-Backs Value with Add-Backs $30,000,000 25,000,000 5,000,000 3,500,000 $1,500,000 $50,000 400,000 50,000 $500,000 $10,000,000 $30,000,000 $40,000,000 ( ) ( )
  34. 34. Showing Value of Add-backs $30,000,000 $40,000,000 Value without Add-Backs Value with Add-Backs
  35. 35.   • • • •
  36. 36.  • • 

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