Equity Valuation using Spreadsheets.pptx
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This document outlines various valuation methods and metrics used to evaluate companies, including: 1. Free cash flow models like FCFF and FCFE which discount future cash flows. 2. Common valuation ratios like P/E, P/B, EV/EBITDA which compare price to earnings, book value, or cash flows to determine if a company is cheap or expensive. 3. Growth-adjusted ratios like PEG which incorporate growth rates to compare companies with different growth profiles. The document provides examples of calculating various valuation metrics and outlines how investors can use them to determine what price they should pay to achieve their required return.
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Breast cancer in postmenopausal women with hormone receptor-positive (HR+) status is a common and complex condition that necessitates a multifaceted approach to management. HR+ breast cancer means that the cancer cells grow in response to hormones such as estrogen and progesterone. This subtype is prevalent among postmenopausal women and typically exhibits a more indolent course compared to other forms of breast cancer, which allows for a variety of treatment options.
Diagnosis and Staging
The diagnosis of HR+ breast cancer begins with clinical evaluation, imaging, and biopsy. Imaging modalities such as mammography, ultrasound, and MRI help in assessing the extent of the disease. Histopathological examination and immunohistochemical staining of the biopsy sample confirm the diagnosis and hormone receptor status by identifying the presence of estrogen receptors (ER) and progesterone receptors (PR) on the tumor cells.
Staging involves determining the size of the tumor (T), the involvement of regional lymph nodes (N), and the presence of distant metastasis (M). The American Joint Committee on Cancer (AJCC) staging system is commonly used. Accurate staging is critical as it guides treatment decisions.
Treatment Options
Endocrine Therapy
Endocrine therapy is the cornerstone of treatment for HR+ breast cancer in postmenopausal women. The primary goal is to reduce the levels of estrogen or block its effects on cancer cells. Commonly used agents include:
Selective Estrogen Receptor Modulators (SERMs): Tamoxifen is a SERM that binds to estrogen receptors, blocking estrogen from stimulating breast cancer cells. It is effective but may have side effects such as increased risk of endometrial cancer and thromboembolic events.
Aromatase Inhibitors (AIs): These drugs, including anastrozole, letrozole, and exemestane, lower estrogen levels by inhibiting the aromatase enzyme, which converts androgens to estrogen in peripheral tissues. AIs are generally preferred in postmenopausal women due to their efficacy and safety profile compared to tamoxifen.
Selective Estrogen Receptor Downregulators (SERDs): Fulvestrant is a SERD that degrades estrogen receptors and is used in cases where resistance to other endocrine therapies develops.
Combination Therapies
Combining endocrine therapy with other treatments enhances efficacy. Examples include:
Endocrine Therapy with CDK4/6 Inhibitors: Palbociclib, ribociclib, and abemaciclib are CDK4/6 inhibitors that, when combined with endocrine therapy, significantly improve progression-free survival in advanced HR+ breast cancer.
Endocrine Therapy with mTOR Inhibitors: Everolimus, an mTOR inhibitor, can be added to endocrine therapy for patients who have developed resistance to aromatase inhibitors.
Chemotherapy
Chemotherapy is generally reserved for patients with high-risk features, such as large tumor size, high-grade histology, or extensive lymph node involvement. Regimens often include anthracyclines and taxanes.
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Equity Valuation using Spreadsheets.pptx
- 1. • “Value is what we receive & price is what we pay”…… Warner Buffet • Condition for buying a product or service • Value>= Price
- 2. • Cash Flow Dividend Discount Model (DDM) Free Cash Flow to Firm (FCFF) Free Cash Flow to Equity (FCFE) FCFF is what available for distribution to all stakeholders of the company. FCFF= EBIT(1-t) + Depreciation – Capex +/- Working capital changes FCFE= EBIT(1-t) + Depreciation – Capex +/- Working capital changes – Interest /loan repayment
- 3. Steps to be followed in valuation 1. Forecasts Free cash flow FCFF= EBIT* (1-tax rate)+Depreciation- Capex +/- Changes in WC 2. Estimate Cost of capital (WACC) 3- Estimate long-term (perpetual growth rate) 4. Estimate present value of FCF at a discount of WACC 5. Sum of present value of FCF
- 4. 6. Estimate terminal value- Last projected year’s FCF* (1+ perpetual growth rate)/(WACC - perpetual growth rate) 7. Estimate PV of terminal value- Terminal value/ (1+WACC)^ year 8. Estimate Enterprise value (EV) (Sum of present value of FCF) + (PV of terminal value) Steps to be followed in valuation
- 5. 9. EV= Equity + Debt – Cash Equity = EV – Debt + Cash 10. Equity/ No. of outstanding shares Steps to be followed in valuation
- 6. • EV is the measure for calculating how much it would cost to buy a company’s business free of its debts and liabilities. It can be thought of as a theoretical takeover price of a company’s business. • Enterprise Value (EV)= PV( FCFF) • EV= Equity + Debt – Cash • Equity = EV – Debt + Cash
- 7. Absolute Valuations vs. Price-Value Sense • Instead of finding the absolute valuation of business, we may like to compare ‘what we get’ with ‘what we pay’ to arrive at sense of valuation. What we pay is the price and what we get is the earnings and assets of the business. • Therefore, if we can compare price with earnings and assets, we can get a sense of valuation – not the absolute valuation but whether something is cheap or expensive.
- 8. Earnings Based Valuation Matrices • Dividend Yield – Price to Dividend Ratio • = Dividend per share (DPS)/Current price of stock
- 9. Earning Yield - Price to Earnings Ratio: • Price to Earnings Ratio = Current price of stock/ Earnings Per Share (EPS) One question that may be asked here is which earnings to use to compute the ratio – trailing (rolling 12 months) or forward.
- 10. Growth Adjusted Price to Earnings Ratio (PEG Ratio) • [Current price of stock/ Earnings Per Share]/Growth rate • PEG ratio is less than 1, business may be treated as undervalued. • If there are two businesses with P/E ratios 10 and 25 but with different growth potentials of 7% and 30% for next few years,
- 11. Enterprise Value to EBDITA Ratio • If market capitalization of a company is Rs. 100,000, debt on balance sheet is Rs. 50,000 and cash and cash equivalents are Rs. 10,000, EBIT is Rs. 10,000 • EV to EBIT ratio would be??? • Sometimes market participants use EBDITA instead of EBIT • Higher this ratio, more expensive the business. And, lower this ratio, cheaper the business.
- 12. Enterprise Value (EV) to Sales Ratio • When EV to EBIT or EV to EBDITA ratios start showing signs of expensiveness, then market participants, to justify cheapness of businesses, move to measures such as EV to Sales Ratio.
- 13. Assets based Valuation Matrices • Price to Book Value Ratio • Price to book value ratio = Market price per share/ Book value per share • Or • Price to book value ratio = Market capitalization/ Book value of equity or net-worth • This ratio indicates, how much we are paying to buy each Rs. of book value of equity.
- 14. • Consider a business with a net-worth of Rs. 100,000 and Market capitalization is Rs. 500,000 and RoE of 45%. if the investor wants 15% minimum return on capital invested, how much he should willing to pay?
- 15. • EV to Capital Employed ratio = Enterprise Value / Capital Employed (Total Equity + Total Debt) • Consider a business with net-worth is Rs. 100,000, debt on the Balance Sheet is Rs. 100,000,Market capitalization is Rs. 500,000, cash and cash equivalents on the balance sheet are nil and ROCE (EBIT/Capital Employed) is 45% per annum.
- 16. • Find out • Capital Employed • EV • EV to Capital Employed Ratio • For example, if the investor wants a 20% minimum return on capital, then how much the investor would be willing to pay EV?
Editor's Notes
- BV-1 Llac 45,000/0.15= 3 lac (he should pay as Mcap) ROE – 45% 15% Return- 45,000 45,000
- Capital Employed = 100,000 + 100,000 = 200,000 EV = 500,000 + 100,000 = 600,000 EV to Capital Employed Ratio = 600,000/200,000 = 3 the investor would not be willing to pay EV of more than 2.25 times (45/20) of employed capital in the business viz. Rs. 450,000.