The document describes the typical structure for expanding a restaurant through limited partnerships. It summarizes:
- Restaurants are often financed through limited partnerships that raise capital from individual investors seeking annual returns and eventual profit from selling their stake.
- A general partner owns 1% and manages the business, while limited partners own the remaining 99% of individual locations and receive cash flows.
- As the restaurant expands, new locations are financed through debt and equity and controlled by the same general partner, who owns the trademark that locations pay fees to use.
- This structure allows the general partner to control operations while owning less than 50% of each individual location.
This document discusses macro issues in valuation for mergers and acquisitions. It begins by defining valuation as determining the economic worth of an asset or company based on certain assumptions. It then discusses key valuation approaches such as income, market, and asset approaches. It also discusses factors that can cause valuations in M&A to depart from fair value, such as control premiums and synergies. Finally, it provides a case study showing how to calculate an exchange ratio in a merger between a listed steel company and unlisted power company based on valuations of both companies.
This document discusses key valuation aspects that must be considered when conducting a family business settlement valuation. It identifies several macro aspects that need to be evaluated such as the terms of the proposed settlement, ownership and control of businesses and assets, operating vs. non-operating assets, valuation date, and scope of the assignment. It also discusses the need to analyze financial and non-financial data, understand industry trends, value both operating and non-operating assets, and consider applicable discounts or premiums. Finally, it outlines various valuation approaches and methodologies that may be used to value businesses and assets, as well as regulatory valuation requirements.
This document provides an overview and history of valuation in India under different regulatory statutes. It discusses the valuation of companies for mergers and acquisitions, preferential allotment, and other transactions under the Companies Act, SEBI regulations, RBI guidelines, and Income Tax laws. The key valuation approaches discussed are income, asset, and market approaches. It outlines the emerging opportunities for registered valuers in India and changes expected with the implementation of new valuation standards and IndAS.
This document provides an overview of business valuation in India and emerging opportunities. It discusses the history of valuation in India and recent trends in startup valuation and private equity deals. The presentation covers various valuation approaches, methodologies, and the valuation process. It also examines valuation under different statutes such as M&A, RBI, Income Tax, SEBI, and the Companies Act. Emerging opportunities in valuation include the role of registered valuers and adoption of international valuation standards. Tricky valuation issues and case laws are also briefly outlined.
The document outlines the stages of ESOP implementation including grant, vesting, exercise and sale. It discusses guidance from AICPA on valuing ESOP compensation using fair value principles and the factors to consider such as discounts for lack of control and marketability. Finally, it examines considerations for option pricing models like Black-Scholes in valuing ESOPs including how the key variables of exercise price, market price, volatility and risk free rate impact the option value.
The document discusses various methods for valuing firms during mergers and acquisitions. It describes balance sheet, dividend discount, and cash flow valuation models. It also outlines the steps in a valuation, including analyzing historical performance, forecasting performance, estimating the cost of capital, and calculating and interpreting results. Finally, it analyzes the proposed merger between HP and Compaq using relative stock prices, comparable companies, premium analyses, and pro forma earnings impacts.
Business valuation fundamentals & the maximization of entity valueAzran Financial APC
In the complex world of business valuation, understanding the valuations process can be of key importance to receiving the highest and best value for your company.
Through a basic understanding of the principles of business valuation (both public and private, closely held) one can learn to navigate the process that touches everything from transactions to taxation.
Indian corporates are transitioning to the new Indian Accounting Standards (Ind AS) which converge closely with IFRS. Ind AS require fair value accounting for approximately 75% of the balance sheet. Significant standards include Ind AS 113 on fair value measurement, Ind AS 103 on business combinations, and Ind AS 16 on property, plant, and equipment. Ind AS transition improves comparability, transparency, and results in more qualitative financial statements with global acceptability. Fair value is a principle-based framework and requires use of valuation techniques like discounted cash flow analysis and consideration of fair value hierarchy and premiums/discounts in fair value measurement.
This document discusses macro issues in valuation for mergers and acquisitions. It begins by defining valuation as determining the economic worth of an asset or company based on certain assumptions. It then discusses key valuation approaches such as income, market, and asset approaches. It also discusses factors that can cause valuations in M&A to depart from fair value, such as control premiums and synergies. Finally, it provides a case study showing how to calculate an exchange ratio in a merger between a listed steel company and unlisted power company based on valuations of both companies.
This document discusses key valuation aspects that must be considered when conducting a family business settlement valuation. It identifies several macro aspects that need to be evaluated such as the terms of the proposed settlement, ownership and control of businesses and assets, operating vs. non-operating assets, valuation date, and scope of the assignment. It also discusses the need to analyze financial and non-financial data, understand industry trends, value both operating and non-operating assets, and consider applicable discounts or premiums. Finally, it outlines various valuation approaches and methodologies that may be used to value businesses and assets, as well as regulatory valuation requirements.
This document provides an overview and history of valuation in India under different regulatory statutes. It discusses the valuation of companies for mergers and acquisitions, preferential allotment, and other transactions under the Companies Act, SEBI regulations, RBI guidelines, and Income Tax laws. The key valuation approaches discussed are income, asset, and market approaches. It outlines the emerging opportunities for registered valuers in India and changes expected with the implementation of new valuation standards and IndAS.
This document provides an overview of business valuation in India and emerging opportunities. It discusses the history of valuation in India and recent trends in startup valuation and private equity deals. The presentation covers various valuation approaches, methodologies, and the valuation process. It also examines valuation under different statutes such as M&A, RBI, Income Tax, SEBI, and the Companies Act. Emerging opportunities in valuation include the role of registered valuers and adoption of international valuation standards. Tricky valuation issues and case laws are also briefly outlined.
The document outlines the stages of ESOP implementation including grant, vesting, exercise and sale. It discusses guidance from AICPA on valuing ESOP compensation using fair value principles and the factors to consider such as discounts for lack of control and marketability. Finally, it examines considerations for option pricing models like Black-Scholes in valuing ESOPs including how the key variables of exercise price, market price, volatility and risk free rate impact the option value.
The document discusses various methods for valuing firms during mergers and acquisitions. It describes balance sheet, dividend discount, and cash flow valuation models. It also outlines the steps in a valuation, including analyzing historical performance, forecasting performance, estimating the cost of capital, and calculating and interpreting results. Finally, it analyzes the proposed merger between HP and Compaq using relative stock prices, comparable companies, premium analyses, and pro forma earnings impacts.
Business valuation fundamentals & the maximization of entity valueAzran Financial APC
In the complex world of business valuation, understanding the valuations process can be of key importance to receiving the highest and best value for your company.
Through a basic understanding of the principles of business valuation (both public and private, closely held) one can learn to navigate the process that touches everything from transactions to taxation.
Indian corporates are transitioning to the new Indian Accounting Standards (Ind AS) which converge closely with IFRS. Ind AS require fair value accounting for approximately 75% of the balance sheet. Significant standards include Ind AS 113 on fair value measurement, Ind AS 103 on business combinations, and Ind AS 16 on property, plant, and equipment. Ind AS transition improves comparability, transparency, and results in more qualitative financial statements with global acceptability. Fair value is a principle-based framework and requires use of valuation techniques like discounted cash flow analysis and consideration of fair value hierarchy and premiums/discounts in fair value measurement.
Valuation of Startups [with limitation of traditional valuation approach] Nitin Pahilwani
Valuation of Startups [with limitation of traditional valuation approach]
1. Introduction…
2. Factors affecting Start-up Valuation…
3. Limitation of Traditional Valuation Method…
4. Start-up Valuation Method…
a. Venture Capital Method…
b. Berkus Method…
c. Scorecard Method…
d. Risk Factor Simulation Method…
e. First Chicago Method…
5. Closing the Valuation Gap…
This document provides an overview of valuation methods for intangible assets. It discusses the Interbrand Best Global Brands 2020 report and highlights new entrants to the top 100 brands. It then defines intangible assets and outlines the major types. The document reviews several valuation approaches for intangibles, including the income approach, cost approach, and market approach. It provides details on specific valuation methods like relief from royalty, brand earnings multiple, discounting, multi-period excess earnings, and assembled workforce.
The document discusses India's migration to fair value accounting practices as outlined by International Financial Reporting Standards (IFRS). Key points include:
- Beginning in April 2011, company assets and liabilities will be valued at their current market value rather than original price under IFRS.
- Intangible assets like brands and customer relationships will appear on acquirer balance sheets. Composition of balance sheets will change.
- IFRS defines fair value and outlines its use for share-based payments, business combinations, financial instruments, and other standards.
- SPA Merchant Bankers provides valuation services to help clients comply with IFRS fair value requirements.
EFG Hermes - Thoughts on Valuation - April 2016Mohamed Marei
This document initiates coverage on EFG Hermes, an Egypt-based investment bank, assigning it a "Buy" rating. It values EFG Hermes at 17.54 Egyptian pounds per share, implying 73.8% upside potential from the current market price. While EFG Hermes operates in a cyclical industry, the company has hedged volatility by penetrating new non-cyclical businesses like leasing and microfinance. The document examines EFG Hermes' business segments and justifies using a price-to-book multiple valuation approach given the current highly volatile environment.
Intelligent Advisory Portfolios (IAP) are pre-packaged equity portfolios advised by Registered Investment Advisors that allow investors to invest in the stock market without having to research stocks or market conditions. IAP provide benefits like diversified investment options, online investing capabilities, and 24/7 portfolio tracking. Current IAP offerings include Fundtech, Largecap, Smallcap, NS Industry Champ, NS Mid & Smallcap, NS Emerging India, and NS Multicap portfolios that differ based on risk appetite, investment timeframe, and methodology.
This document provides an overview of value investing. It introduces value investing as investing in undervalued stocks with a margin of safety based on calculating a stock's intrinsic value using fundamental analysis tools like EPS, P/E ratio, and book value. It then discusses strategies for fundamental analysis using financial statements and developing a user interface. Some learnings are an overview of markets, the process of value investing, and business analysis. Limitations include the time-consuming nature, lack of awareness, reliance on developers, and needing meetings. The document aims to guide investors on value investing principles and methodology.
This document discusses business valuation and provides an overview of the valuation process. It begins by explaining that business valuation involves giving an opinion on the value of a business's ownership interest based on the assets and liabilities. The valuation process involves analyzing internal company information, industry and economic factors, and using the asset, income, and market approaches to valuation. It then provides more details on each valuation approach and the steps involved before reconciling the different values into a final conclusion. The document also provides considerations for different types of businesses, like manufacturing, and ways for business owners to maximize their value.
This document outlines the agenda and content for a presentation on mergers and acquisitions (M&A) valuations. The presentation covers:
I. An introduction to M&A valuation, including key terms like firm value, equity value, and net debt.
II. Dynamics of M&A valuation, including drivers of deals, the role of investment bankers, and valuation methodologies represented by a "football field".
III. Initial public offering (IPO) valuation, specifically important factors and an in-depth IPO valuation analysis.
Two sets of contrasting investment styles are revisited here- value (contrarian) vs momentum and active vs passive to identify investment opportunity at minimum cost on The Nairobi Securities Exchange (NSE). The results are eye-popping.
Growth equity and buyout funds use leverage and operational improvements to increase returns. Growth equity invests in growing companies, while buyout funds seek undervalued companies. Leverage multiplies returns through debt financing, allowing buyouts to exit at higher valuations. For example, a buyout may use 10x annual profits to value a $10M profit company at $100M, financing $70M with debt. If profits stay flat but exit at 15x in 5 years, equity returns double to 22% annually despite no profit growth.
This document discusses various methods for valuing equity shares of private limited companies, including comparable company market multiple methodology, discounted cash flow analysis, net asset value method, and earning capacity method. The comparable company market multiple methodology applies valuation ratios from publicly traded comparable companies to the private company. Discounted cash flow analysis forecasts future cash flows and discounts them to calculate present value. The net asset value method values assets at book value and liabilities to determine value per share. The earning capacity method uses average past profits adjusted for abnormalities to determine future maintainable profits and earnings per share, which is multiplied by a price-to-earnings ratio to determine value per share. Important considerations for valuing private shares include any valuation provisions in the articles
The report estimates the fair market value of Sample business at $20,000. It analyzed the business's financial data, risk factors, and used a proprietary valuation process to determine the value. The scope was limited to client-submitted data and risk ratings. The report disclaims responsibility and advises consulting advisors, as the value is an estimate that could differ from an actual transaction price.
Desai Capital Management provides a summary of key factors they consider when conducting value screening to identify attractive investment opportunities. They look for companies with market caps over $3 billion that are in established industries with predictable competitive landscapes. Relative valuation metrics are analyzed against industry and historical averages to identify undervalued companies. Insider purchasing is viewed favorably as a sign that management sees upside. Activist investor campaigns can also bring attention to undervalued situations. Restatements, management turnover, and large unfunded pension liabilities are red flags.
The BCG Matrix is a portfolio analysis tool developed by the Boston Consulting Group in the 1970s to help corporations analyze their business units, or Strategic Business Units (SBUs). It uses a 2x2 matrix, with relative market share on the x-axis and market growth rate on the y-axis, to categorize SBUs into four groups: Stars, Cash Cows, Question Marks, and Dogs. The document provides details on the emergence, components, applications, advantages, and limitations of the BCG Matrix model for analyzing corporate portfolios.
The document discusses the Boston Consulting Group (BCG) Matrix, which was developed in the 1970s. The BCG Matrix classifies businesses based on their relative market share and market growth rate. Businesses fall into one of four categories: stars, cash cows, question marks, and dogs. Stars have high market share in high growth markets and require investment. Cash cows have high market share in low growth markets and generate cash. Question marks have low market share in high growth markets and require investment. Dogs have low market share in low growth markets and do not generate much cash. The BCG Matrix can be used to assess businesses, allocate resources, and make divestment decisions.
- The document discusses top mistakes made during acquisitions and how to avoid them. It focuses on two main mistakes - getting the deal structure, price, or leverage wrong which can lead to overpayment, and misreading the culture of the acquired company which can result in a poor integration.
- To prevent overpaying, companies should conduct thorough due diligence, stress test financial projections, and perform sanity checks on valuations. They should also formalize acquisition policies and procedures.
- To prevent culture clashes, acquirers need to carefully assess the entrepreneurial culture of privately-held targets, especially family businesses. The role and expectations of the founder must be clearly understood to facilitate integration.
This document provides an overview of three portfolio analysis models: the BCG matrix, PIMS model, and GE/McKinsey multi-factor matrix. The BCG matrix assesses business units based on their market share and market growth rate to determine if they are cash cows, stars, question marks, or dogs. The PIMS model identifies factors like quality, market share, and investment intensity that impact profitability based on a database of companies. The GE/McKinsey multi-factor matrix evaluates business units on both industry attractiveness and business strengths based on multiple subjective factors.
1. Common stock represents ownership in a corporation and a claim on its assets and earnings. There are different types including common, preferred, and classes A and B.
2. Owners of common stock are also known as shareholders or equity owners. They may receive dividends as determined by the board of directors and can benefit from capital gains.
3. Fundamental analysis and technical analysis are two main approaches used to evaluate common stocks and make investment decisions.
Valuation of Startups [with limitation of traditional valuation approach] Nitin Pahilwani
Valuation of Startups [with limitation of traditional valuation approach]
1. Introduction…
2. Factors affecting Start-up Valuation…
3. Limitation of Traditional Valuation Method…
4. Start-up Valuation Method…
a. Venture Capital Method…
b. Berkus Method…
c. Scorecard Method…
d. Risk Factor Simulation Method…
e. First Chicago Method…
5. Closing the Valuation Gap…
This document provides an overview of valuation methods for intangible assets. It discusses the Interbrand Best Global Brands 2020 report and highlights new entrants to the top 100 brands. It then defines intangible assets and outlines the major types. The document reviews several valuation approaches for intangibles, including the income approach, cost approach, and market approach. It provides details on specific valuation methods like relief from royalty, brand earnings multiple, discounting, multi-period excess earnings, and assembled workforce.
The document discusses India's migration to fair value accounting practices as outlined by International Financial Reporting Standards (IFRS). Key points include:
- Beginning in April 2011, company assets and liabilities will be valued at their current market value rather than original price under IFRS.
- Intangible assets like brands and customer relationships will appear on acquirer balance sheets. Composition of balance sheets will change.
- IFRS defines fair value and outlines its use for share-based payments, business combinations, financial instruments, and other standards.
- SPA Merchant Bankers provides valuation services to help clients comply with IFRS fair value requirements.
EFG Hermes - Thoughts on Valuation - April 2016Mohamed Marei
This document initiates coverage on EFG Hermes, an Egypt-based investment bank, assigning it a "Buy" rating. It values EFG Hermes at 17.54 Egyptian pounds per share, implying 73.8% upside potential from the current market price. While EFG Hermes operates in a cyclical industry, the company has hedged volatility by penetrating new non-cyclical businesses like leasing and microfinance. The document examines EFG Hermes' business segments and justifies using a price-to-book multiple valuation approach given the current highly volatile environment.
Intelligent Advisory Portfolios (IAP) are pre-packaged equity portfolios advised by Registered Investment Advisors that allow investors to invest in the stock market without having to research stocks or market conditions. IAP provide benefits like diversified investment options, online investing capabilities, and 24/7 portfolio tracking. Current IAP offerings include Fundtech, Largecap, Smallcap, NS Industry Champ, NS Mid & Smallcap, NS Emerging India, and NS Multicap portfolios that differ based on risk appetite, investment timeframe, and methodology.
This document provides an overview of value investing. It introduces value investing as investing in undervalued stocks with a margin of safety based on calculating a stock's intrinsic value using fundamental analysis tools like EPS, P/E ratio, and book value. It then discusses strategies for fundamental analysis using financial statements and developing a user interface. Some learnings are an overview of markets, the process of value investing, and business analysis. Limitations include the time-consuming nature, lack of awareness, reliance on developers, and needing meetings. The document aims to guide investors on value investing principles and methodology.
This document discusses business valuation and provides an overview of the valuation process. It begins by explaining that business valuation involves giving an opinion on the value of a business's ownership interest based on the assets and liabilities. The valuation process involves analyzing internal company information, industry and economic factors, and using the asset, income, and market approaches to valuation. It then provides more details on each valuation approach and the steps involved before reconciling the different values into a final conclusion. The document also provides considerations for different types of businesses, like manufacturing, and ways for business owners to maximize their value.
This document outlines the agenda and content for a presentation on mergers and acquisitions (M&A) valuations. The presentation covers:
I. An introduction to M&A valuation, including key terms like firm value, equity value, and net debt.
II. Dynamics of M&A valuation, including drivers of deals, the role of investment bankers, and valuation methodologies represented by a "football field".
III. Initial public offering (IPO) valuation, specifically important factors and an in-depth IPO valuation analysis.
Two sets of contrasting investment styles are revisited here- value (contrarian) vs momentum and active vs passive to identify investment opportunity at minimum cost on The Nairobi Securities Exchange (NSE). The results are eye-popping.
Growth equity and buyout funds use leverage and operational improvements to increase returns. Growth equity invests in growing companies, while buyout funds seek undervalued companies. Leverage multiplies returns through debt financing, allowing buyouts to exit at higher valuations. For example, a buyout may use 10x annual profits to value a $10M profit company at $100M, financing $70M with debt. If profits stay flat but exit at 15x in 5 years, equity returns double to 22% annually despite no profit growth.
This document discusses various methods for valuing equity shares of private limited companies, including comparable company market multiple methodology, discounted cash flow analysis, net asset value method, and earning capacity method. The comparable company market multiple methodology applies valuation ratios from publicly traded comparable companies to the private company. Discounted cash flow analysis forecasts future cash flows and discounts them to calculate present value. The net asset value method values assets at book value and liabilities to determine value per share. The earning capacity method uses average past profits adjusted for abnormalities to determine future maintainable profits and earnings per share, which is multiplied by a price-to-earnings ratio to determine value per share. Important considerations for valuing private shares include any valuation provisions in the articles
The report estimates the fair market value of Sample business at $20,000. It analyzed the business's financial data, risk factors, and used a proprietary valuation process to determine the value. The scope was limited to client-submitted data and risk ratings. The report disclaims responsibility and advises consulting advisors, as the value is an estimate that could differ from an actual transaction price.
Desai Capital Management provides a summary of key factors they consider when conducting value screening to identify attractive investment opportunities. They look for companies with market caps over $3 billion that are in established industries with predictable competitive landscapes. Relative valuation metrics are analyzed against industry and historical averages to identify undervalued companies. Insider purchasing is viewed favorably as a sign that management sees upside. Activist investor campaigns can also bring attention to undervalued situations. Restatements, management turnover, and large unfunded pension liabilities are red flags.
The BCG Matrix is a portfolio analysis tool developed by the Boston Consulting Group in the 1970s to help corporations analyze their business units, or Strategic Business Units (SBUs). It uses a 2x2 matrix, with relative market share on the x-axis and market growth rate on the y-axis, to categorize SBUs into four groups: Stars, Cash Cows, Question Marks, and Dogs. The document provides details on the emergence, components, applications, advantages, and limitations of the BCG Matrix model for analyzing corporate portfolios.
The document discusses the Boston Consulting Group (BCG) Matrix, which was developed in the 1970s. The BCG Matrix classifies businesses based on their relative market share and market growth rate. Businesses fall into one of four categories: stars, cash cows, question marks, and dogs. Stars have high market share in high growth markets and require investment. Cash cows have high market share in low growth markets and generate cash. Question marks have low market share in high growth markets and require investment. Dogs have low market share in low growth markets and do not generate much cash. The BCG Matrix can be used to assess businesses, allocate resources, and make divestment decisions.
- The document discusses top mistakes made during acquisitions and how to avoid them. It focuses on two main mistakes - getting the deal structure, price, or leverage wrong which can lead to overpayment, and misreading the culture of the acquired company which can result in a poor integration.
- To prevent overpaying, companies should conduct thorough due diligence, stress test financial projections, and perform sanity checks on valuations. They should also formalize acquisition policies and procedures.
- To prevent culture clashes, acquirers need to carefully assess the entrepreneurial culture of privately-held targets, especially family businesses. The role and expectations of the founder must be clearly understood to facilitate integration.
This document provides an overview of three portfolio analysis models: the BCG matrix, PIMS model, and GE/McKinsey multi-factor matrix. The BCG matrix assesses business units based on their market share and market growth rate to determine if they are cash cows, stars, question marks, or dogs. The PIMS model identifies factors like quality, market share, and investment intensity that impact profitability based on a database of companies. The GE/McKinsey multi-factor matrix evaluates business units on both industry attractiveness and business strengths based on multiple subjective factors.
1. Common stock represents ownership in a corporation and a claim on its assets and earnings. There are different types including common, preferred, and classes A and B.
2. Owners of common stock are also known as shareholders or equity owners. They may receive dividends as determined by the board of directors and can benefit from capital gains.
3. Fundamental analysis and technical analysis are two main approaches used to evaluate common stocks and make investment decisions.
This Digest is designed to serve as a non-exhaustive review of highlights of the Internet Corporation for Assigned Names and Numbers (ICANN) Public Meeting relevant to a variety of businesses stakeholders affected by ICANN’s work, presented in business friendly language.
How to run system administrator recruitment process? By creating platform based on open source parts in just 2 nights! I gave this talk in Poland / Kraków OWASP chapter meeting on 17th October 2013 at our local Google for Entrepreneurs site. It's focused on security and also shows how to create recruitment process in CTF / challenge way.
This story covers mostly security details of this whole platform. There's great chance, that I will give another talk about this system but this time focusing on technical details. Stay tuned ;)
Private Equity Valuation Methods improve active equity portfolio by valuing a business/company that is the core task of the financial analyst. Most PE/VC firms estimate a company’s value with the help of Equity Valuation Methods. To evaluate an organization, there should be enough understanding of Venture Valuation, which is considered as the most holistic evaluation approach.
The document analyzes the financing and management of School Corporation, the largest educational publishing company. It finds that the company has a low operating margin and fixed costs, exposing it to risks from decreases in revenue. Recommendations include reducing inefficient costs, discontinuing low-revenue operations, improving the customer mix through Pareto analysis, ensuring corporate strategies are properly implemented, reducing fixed costs, and complying with regulatory requirements. The summary identifies key financial issues and provides high-level recommendations to address operating risks and improve profitability.
The document provides an overview of the market approach valuation method. It discusses selecting guideline public companies that are similar to the subject company based on industry, operations, growth, and financial characteristics. Multiples are derived from the financial ratios of these public companies and applied to the subject company to determine valuation. Key issues include identifying sufficiently comparable public companies and adjusting for differences between public and private companies such as liquidity and access to capital.
Low-interest rates mean that P&C leadership teams are facing increasing pressure to generate heftier margins from their underwriting operations. More at http://gt-us.co/1japuAu
This document discusses value creation and measurement in financial management. It covers several key points:
1) Accounting profits differ from economic profits, with economic profits needing to exceed costs of production including cost of capital to create value.
2) Value is created when investments provide economic profits over their economic life. Capital budgeting evaluates potential investments' net present value of future benefits to determine which create value.
3) Evaluating existing operations can indicate whether to invest more in high return/growth areas, exploit high return areas, fix low return areas with promise, or exit low return/promise areas. This ensures capital is allocated to maximize value creation.
The document discusses establishing effective internal controls over revenue recognition for medical technology companies. Key points include communicating revenue recognition policies throughout the organization, establishing controls to ensure adherence to policies and prepare for audits, and focusing on areas of highest risk like estimates and accounting for multi-element arrangements. It provides an overview of the new revenue recognition standards and emphasizes the importance of training, documentation, and ongoing monitoring to implement the changes required.
The document discusses value creation from both a theoretical and practical perspective. It defines value creation as earning economic profits that exceed the cost of capital. From a theoretical standpoint, it discusses using capital budgeting techniques to evaluate existing operations and identify opportunities to improve returns, grow profits, fix underperformers, or exit businesses. Practically, it outlines a five-step process to apply value creation analysis: 1) model company operations, 2) prioritize key value drivers, 3) evaluate opportunities, 4) implement changes, and 5) measure results and revise the analysis over time on a continual basis. The goal is to ensure economic profits exceed costs to maximize value creation.
10
66 harvard business review | hbr.org
t’s become fashionable to blame the pursuit of
shareholder value for the ills besetting corporate
America: managers and investors obsessed with next
quarter’s results, failure to invest in long-term growth,
and even the accounting scandals that have grabbed head-
lines. When executives destroy the value they are sup-
posed to be creating, they almost always claim that stock
market pressure made them do it.
The reality is that the shareholder value principle has
not failed management; rather, it is management that has
betrayed the principle. In the 1990s, for example, many
companies introduced stock options as a major compo-
nent of executive compensation. The idea was to align the
interests of management with those of shareholders. But
the generous distribution of options largely failed to mo-
tivate value-friendly behavior because their design almost
guaranteed that they would produce the opposite result.
To start with, relatively short vesting periods, combined
with a belief that short-term earnings fuel stock prices, en-
couraged executives to manage earnings, exercise their
options early, and cash out opportunistically. The com-
mon practice of accelerating the vesting date for a CEO’s
Companies profess devotion to shareholder value but rarely follow the practices
that maximize it. What will it take to make your company a level 10 value creator?
by Alfred Rappaport
I
S
IM
O
N
P
E
M
B
E
R
T
O
N
Ways to Create
Shareholder Value
Y
E
L
M
A
G
C
Y
A
N
B
L
A
C
K
september 2006 67
Te n Wa y s t o C r e a t e S h a r e h o l d e r Va l u e
options at retirement added yet another incentive to
focus on short-term performance.
Of course, these shortcomings were obscured during
much of that decade, and corporate governance took a
backseat as investors watched stock prices rise at a double-
digit clip. The climate changed dramatically in the new
millennium, however, as accounting scandals and a steep
stock market decline triggered a rash of corporate col-
lapses. The ensuing erosion of public trust prompted a
swift regulatory response–most notably, the 2002 passage
of the Sarbanes-Oxley Act (SOX), which requires compa-
nies to institute elaborate internal controls and makes cor-
porate executives directly accountable for the accuracy of
financial statements. Nonetheless, despite SOX and other
measures, the focus on short-term performance persists.
In their defense, some executives contend that they
have no choice but to adopt a short-term orientation,
given that the average holding period for stocks in profes-
sionally managed funds has dropped from about seven
years in the 1960s to less than one year today. Why con-
sider the interests of long-term shareholders when there
are none? This reasoning is deeply flawed. What matters
is not investor holding periods but rather the market’s val-
uation horizon – the number of years of expec.
The main ideology behind the conception of ERM is to help companie.docxoreo10
The main ideology behind the conception of ERM is to help companies proactively identify, analyze and manage risks and events that have the capability of impacting the business. Developing a collaborative response is crucial is possible when early identification of risk is achieved. Changes in the business environment require sound judgment in anticipating both the consequences of the particular event and the potential likelihood.
The research conducted illustrates that the difficulty is intensified because the company should be innovative and adaptive, a feature that lacks in many corporations. Following the implementation in different companies, the primary challenge posed is locating the respective area in the company where its potentiality is more enhanced. The transition has been implemented from the traditional leadership function to the various levels of operation.
One of the crucial insights obtained from the interaction with companies adopting the ERM system indicates that the change is effective especially if used in a suitable context. The funds in implementing the system may pose a challenge, however, in such a situation, a counter project can be carried out in regards to the nature of the company. So, upon implementation, the ERM program progresses from its initial establishment to a sophisticated program with prolonged use.
ERM is regarded as a complete approach and as a result, leaders can trust the program as a comprehensive approach to risk management. The plan is meant to scratch through a broad range of operational threats in the internal and external environment of the company that could impact its short term and long-term success. In conclusion, the general conclusion is right; it is true to say that ERM has enabled the provision that is crucial in fulfilling and excelling in leadership mandate.
Companies:
1- Oula fuel marketing co
2- Kuwait resort company
http://www.boursakuwait.com.kw/Stock/Financials.aspx?Stk=651&S=INC
ACT553 – FINANCIAL ACOUNTING II
FALL 2016
1. Revenue Recognition
Revenue is the largest item on the income statement and we must assess it on a quantitative and qualitative basis.
_Use horizontal analysis to identify any time trends
_Compare the horizontal analyses of the companies.
_Consider the current economic environment and the company`s competitive landscape. Given that they operate in the same industry, you may expect similar revenue trends.
_Read the management’s discussion and analysis (MD&A) section of the annual reports to learn how the companies’ senior managers explain revenue levels and changes.
2. R&D Activities
Do the companies engage in substantial R&D activities?
_Determine the amount of the expense on the income statement. You may need to look in the footnotes or the MD&A for this information. Is the common-sized amount changing over time? What pattern is detected?
_Read the footnotes and assess the company’s R&D pipeline. What are the major outcomes ...
This document provides guidance on assessing a company's performance using financial statement analysis techniques. It discusses various types of ratios that can be used, including profitability, liquidity, management efficiency, solvency, and investment ratios. It also covers cash flow analysis. Key points include:
- Ratios and cash flows should be analyzed over time and compared to peers to evaluate a company's performance.
- Non-financial factors like the business environment must be considered when assessing performance.
- Multiple ratios across different categories should be examined together rather than in isolation to get a full picture of a company's financial health.
Keith turner quick silver funding solutions the role of finance in the stra...keithturnerquicksilverfun
Keith Turner discusses the role of finance in strategic planning and decision making. He outlines the strategic planning process and emphasizes that financial goals and metrics are critical to translating vision into action. Specifically, he discusses 8 key financial metrics that should be established based on benchmarks and industry standards to monitor strategy implementation: free cash flow, economic value-added, asset management, financing decisions, profitability ratios, growth indices, risk assessment, and tax optimization. Establishing measurable financial goals in these areas helps firms execute strategies effectively and create long-term value for stakeholders.
A Study of Disclosure of Accounting Policies in BAJAJ Allianz Insurance Compa...employee goverment
The document discusses various ratios used to analyze and compare the financial performance of Bajaj Allianz Life Insurance Company and ICICI Prudential Life Insurance Company over several years. It provides data on ratios such as premium to total income, surplus to total income, total income to investment, revenue to total income, current ratio, leverage ratio, and profitability ratio. The analysis finds that Bajaj Allianz generally has better ratios compared to ICICI Prudential, indicating stronger financial performance and health. However, Bajaj Allianz's net profit ratio declined in 2014, which is a cause for concern.
Mercer Capital | Valuation Insight | Distribution Policy in 30 MinutesMercer Capital
Of the three primary corporate finance decisions, distribution policy is the most transparent to shareholders. Distribution policy addresses both how much cash flow should be distributed to shareholders and the ideal form of such distributions. In the context of a company’s life cycle stage, directors can use distribution policy to manage the firm’s capital structure and tailor the form of returns (current yield relative to capital appreciation) in light of shareholder preferences. Diverse shareholder preferences and characteristics can enhance the attractiveness of share repurchases relative to dividends; however, for private companies executing share repurchases is not as straightforward as for public companies. The purpose of this whitepaper is to help directors formulate and communicate a distribution policy that contributes to shareholder wealth and satisfaction.
ScenarioBranson Ltd. is a public listed tour company that is bas.docxjeffsrosalyn
Scenario
Branson Ltd. is a public listed tour company that is based in Melbourne. One of its main operating businesses is to provide tourists with hot-air balloon flights over the city. As their current balloons are due to be retired, they must decide whether to replace them with a large or small model. New balloons have an expected life of 8 years, after which salvage values are $70,000 for the large balloons and $45,000 for the small balloons. Market research has estimated that there is a 60% probability that demand will be high throughout the useful life of the balloons, and a 40% probability that demand will be low throughout the useful life of the balloons.
The large model is expected to cost $900,000, with an extra installation and shipping cost of $80,000. The small model is expected to cost $650,000, with an additional installation and shipping cost of $45,000. The company's accounting policy is to depreciate using the reducing balance approach of 20% per annum.1 There is also an initial increase in net working capital of $70,000 for the large model, and $40,000 for the small model. The net working capital is recoverable at the end of their useful life.
In the event of high demand, the company expects a yearly operating revenue of $800,000 for the large model, and a yearly operating revenue of $330,000 for the small model. If the demand is low, yearly operating revenue is forecasted to be $700,000 for the large model and $280,000 for the small model. Annual variable and fixed costs associated with operating these balloons are expected to be $400,000 for the large model and $150,000 for the small model. In addition, if the large model is preferred over the small model, the company needs to rent an additional warehouse to store the large balloons. A new warehouse’s rental cost is expected to be $150,000 per year. At the end of year four, there is also an option to cease operation and thus sell the large balloons for $500,000 and the small balloons for $400,000 if the business is not profitable.
The company requires you to calculate an appropriate discount rate using the company’s weighted average cost of capital. The company’s capital structure has remained fairly stable, with a debt-to-equity ratio of 1.2. The company has no plan to adjust its capital structure in the future. Given that the company is listed on the stock exchange, you are able to obtain the historical returns over the last 20 years for the company, the market portfolio and the risk-free asset as tabulated in Table 1. The company debentures have a face value of $1000 and a coupon rate of 10%. They mature in 10 years' time. Similar debentures are currently yielding 12%. The company tax rate is 30%.
1 As discussed in Week 5, ignore residual value in the calculation of yearly depreciation.
Table 1
Year
Branson
Market
Risk-free
1999
23.13%
13.81%
6.01%
2000
19.55%
12.77%
6.31%
2001
10.08%
7.65%
5.62%
2002
-19.35%
-10.64%
5.84%
2003
25.01%
14.61%
5.37%
2004
29.21%
29.
This document discusses financial statement ratio analysis. It explains that ratio analysis evaluates relationships within financial statements to provide insights into a company's performance relative to peers and over time. Differences in ratios can be due to strategy, management effectiveness, accounting methods, or financial strategy. The DuPont formula breaks return on equity into net profit margin, asset turnover, and financial leverage. Various liquidity and solvency ratios are also discussed.
AN OVERVIEW TO FINANCIAL MANAGEMENT WEEK 1. 6000B(1).pptxirynmwangi3
Financial management involves allocating scarce resources efficiently within a firm. A firm raises funds from investors to allocate to projects that yield the highest returns. The required rate of return is the minimum rate a project must generate to receive funds, and considers the risk-free rate plus risk premiums. Financial management plays key roles like financial planning, capital management, and ensuring efficient allocation and utilization of resources. Its goals include profitability, employee and customer satisfaction, continued growth, and meeting organizational objectives.
Ratio analysis is a useful tool for comparing the financial performance of companies. It allows analysis of a company's financial health, profitability, and operational efficiency over time and relative to peers. However, ratio analysis has limitations as it only considers quantitative factors and a single ratio provides limited insight. Ratios can also be impacted by changes in accounting policies.
The payout ratio measures the percentage of earnings paid out as dividends. It is calculated as dividends per share divided by earnings per share. A company's dividend policy, industry, growth plans, cash needs, and debt obligations should all be considered when determining its payout ratio rather than following a fixed policy. Maintaining a stable payout can provide investors with certainty but
Why business models help company valuation in UAE?AhmedTalaat127
In business management, several different situations call for company valuation in UAE. An independent valuation is needed in satisfying the requirements of investors, answer the inquiries of lenders, and/or prepare for a future merger or acquisition. Regardless of why there’s a call for company valuation, it’s calculated using decision-oriented or market-oriented methods. But, the business model is now also used by third parties in the process of a company valuation.
Valuation of Startups [with limitation of traditional valuation approach] N Pahilwani & Associates
Valuation of Startups [with limitation of traditional valuation approach]
1. Introduction…
2. Factors affecting Start-up Valuation…
3. Limitation of Traditional Valuation Method…
4. Start-up Valuation Method…
a. Venture Capital Method…
b. Berkus Method…
c. Scorecard Method…
d. Risk Factor Simulation Method…
e. First Chicago Method…
5. Closing the Valuation Gap…
What Are Financial Statements?
Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. For-profit primary financial statements include the balance sheet, income statement, statement of cash flow, and statement of changes in equity. Nonprofit entities use a similar but different set of financial statements.
2. VALUATION | THE RESTAURANT ROLL-UP TRANSACTION
Limitations to the Individual
Store Financing Model
This model of expanding new locations has the benefit of low
cost capital, not diluting the founders of the company, avoiding
excessive leverage, and providing income to the investors. The
model also has some important limitations.
Since the free cash flow from the individual stores is
typically distributed to the partners, there is limited
cash flow to fund any expansion.
The ability to raise equity capital is severely limited
since the business and operations of the limited
partnerships cannot be used as collateral.
There is a point of diminishing returns to utilizing the LP
structure to grow. Even if future growth is anticipated to be
slow and steady, increases in the cash flow at the store level
will not be available and trying to satisfy the limited partners
return expectations will be difficult. Any industry that utilizes
this structure usually reaches a point at which growth becomes
constrained. The fact that only a fraction of cash flow generated
can be reinvested in the business will inhibit expansion, financing,
and the ability to acquire as a method of growth. If all of the
LPs own the same percentage of each partnership, an unusual
condition, the analysis becomes one of relative contribution to
the new entity (“Newco”). This is an easy analysis other than for
the stores that are losing money or are not yet profitable and
the value of GP fees and trademark entity. When proportionality
does not exist, all entities need to be valued to determine their
interest in Newco. Regardless of the circumstance, the valuation
considerations and methodology we use are detailed next.
Valuation Considerations
As is the case with all going concern valuations for operating
companies, there are three valuation approaches, some or all of
which are used for determining indications of value based on the
facts and circumstances as will be discussed in this section.
The approaches are the Income Approach, Market Approach,
and Asset Approach.
I. Income Approach
The Capitalization of Earnings method under this approach
involves capitalizing (dividing a sustainable level of cash flow
at a capitalization rate) a single period of free cash flow by a
rate that deducts an expected long-term growth rate. In order
to implement this method, careful analysis of the historical
financial statements should be conducted in order to exclude
the effects of any nonrecurring amounts of income or expenses.
A normalized level of cash flow should also reflect potential
changes in minimum wages, rents, deferred maintenance,
and required franchise remodeling, just to name a few. Future
demand drivers of restaurants include surrounding demographics,
consumer tastes, disposable income levels, and brand
recognition. This method is most applicable to companies that
face predictable and constant growth, such as single location
restaurants in a mature growth stage. For most restaurants
considering a roll-up transaction, it is likely that the existing
limited partnerships have reached a mature state in which future
cash flows are relatively predictable. Thus, this method can likely
be utilized for roll-up transactions.
The Discounted Cash Flow method involves the discounting
of expected future net cash flows for a predictable period into
the future and a terminal value (based on either capitalizing
earnings or applying a multiple) at an appropriate risk adjusted
rate. This method is most applicable to restaurants that
are new, have expectations to open additional units, or in a
location that is expected to experience a significant change in
economic condition. In a roll-up transaction, a Discounted Cash
Flow method may be necessary for newer locations that may
experience a varying level of revenue and net cash flow prior to
reaching a stable level.
Under either of these methods, the discount rate can be
determined either by the build-up method or by using the Capital
Asset Pricing Model (CAPM) by utilizing data of publicly-traded
comparable companies or SIC code data. As discussed in the
following section, careful consideration should be given to select
companies with comparable concepts and metrics.
II. Market Approach
The Market Approach, also known as the Guideline Company
Approach, involves the determination of indicated values derived
from either developing a group of companies in the same or
similar line of business or those with similar risk characteristics.
The Comparable or Guideline Company Analysis method starts
with a search for comparable companies using a database
such as CapitalIQ in order to find publicly-traded companies
similar to the subject company. It is important to consider the
restaurant’s concept and specific characteristics rather than an
all-inclusive list of restaurants that are too dissimilar. Important
factors to consider in the selection of comparable companies
include the following (i) restaurant concept (casual, coffee/
brewery, fine dining, family, fast casual, sandwich, pizza, etc.);
(ii) demographics; (iii) average ticket amount per person; (iv)
franchise vs. non-franchise; (v) growth expectations; (vi) size; and
(vii) geographic locations.
The Precedent M&A Transactions method also involves a search
using a database (such as CapitalIQ for larger transactions and
PrattStats for private, smaller transactions) for transactions
involving comparable restaurants in order to gauge purchase
multiples. Larger deals often have EBITDA multiple premiums. In
order to implement this method, it is important to consider the
date of transaction, as dated transactions may not be meaningful
as markets change in response to economic and industry
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1
2
3. VALUATION | THE RESTAURANT ROLL-UP TRANSACTION
conditions. Make sure to compare the subject company to
comparable companies for size, leverage, risk, profitability, and
growth prospects. It should be noted that PrattStats database
is useful for similar small companies, although may be lacking
some of the data necessary for drawing conclusions as
information is not as readily available for private companies.
III. Asset Approach
This approach is not generally applicable to going concern
valuations as this method does not capture intangible value.
However, there is a use for this method when a restaurant
location is owned by the company versus leased. In those
situations the value of the land, which may be worth more
than when purchased, needs to be captured in the value. The
approach usually involves treating the land as a sale leaseback
transaction wherein the land is sold subject to a long term
triple net lease, with the sales proceeds included in the going
concern value as a non-operating asset.
Figure 2 shows how all three valuation approaches
could be implemented in order to derive the total value
of a restaurant company.
As previously stated, assuming that the LPs and their
percentages in the individual stores are different, each location
will have to be valued separately. For profitable locations that
lease their real estate, the Income and Market Approaches
will be most commonly used. Unprofitable stores that have the
prospect of success will be based on future cash flow. Locations
that are unprofitable should be valued on an Asset Approach.
For the locations that own real estate, we utilize a combination
of approaches wherein the real estate is treated as if a sale/
leaseback transaction occurred. Rent equal to long term
lease rates is substituted for ownership and then the market
value of the land is added to the going concern value as a
non-operating asset.
The GP and LPs are treated equally for their ownership in existing
stores. What distinguishes the GP and the trademark entity
valuation is the continuing value that derives from their income
related to future stores. The GP and trademark represent the
infrastructure needed to grow. After the roll-up of the locations,
the LPs will participate in future growth while under the pre-
transaction structure they can only grow based on the revenue
and cash flow from the locations they own. That is to say that
they cannot open a store in that entity.
In restaurant valuations, the primary valuation considerations and
drivers consist of geographic demographics (including average
age, number of families, and consumer preference trends),
surrounding disposable income levels, the economic conditions
of the geographic region of the subject restaurant, the technology
and systems in place, and the ability to control costs and
eliminate commodity price risk. More specifically, we consider the
restaurant concept since each concept has different drivers and
faces different risks. The restaurant concept generally determines
the hourly sales (table turns) and average ticket amount. As the
3
Important Valuation
Do’s and Don’ts
Abide by the standard of value — fair market value,
fair value, investment value, etc.
Normalization adjustments — this includes adjusting
for market level compensation, market level rents,
and eliminating non-recurring income and expense
items.
Consideration of adequate levels of cash and working
capital to fund ongoing operations.
Borrowing base (higher if restaurant owns the
building instead of lease) — this is important as a
higher assumed borrowing base could capture the
real estate value in addition to operating value.
Don’t rely solely upon rules of thumb — it is
common in many industries, but it is not a valuation
methodology.
Figure 2
Income
Approach
Market
Approach
Total Value -
Newco
Asset
Approach
Income
Approach
Business EV Real Estate
4. VALUATION | THE RESTAURANT ROLL-UP TRANSACTION
restaurant industry is subject to consumer trends, such as gluten-
free cuisines and having a larger online/social media presence
for viewing menus and making reservations, we also incorporate
the subject’s restaurant adherence to these trends in our cash
flow models.
Obstacles to Getting
Full Acquiescence
In order for the roll-up to be successful, most of the LPs must be
willing to exchange their cash flow, or most of it, in exchange for
the growth opportunities that will exist in the stock of Newco.
The LPs initially invested primarily for income and
not for capital gains and as a result might be resistant to
swapping ownership interests. It is generally necessary to
have discussions with the largest investors, at a minimum,
to assure that there will be a critical mass of investors willing
to change investment strategy.
Unhappy minority investors are always a potential landmine.
Those that have no interest in participating should be
allowed to sell their interest at the values determined during
the valuation process if they choose to do so. The major
investors should be given the opportunity to ask questions
and to have input into the final exchange ratios. Newco
management should consider distributing some of its free cash
flow so that the limited partners can have some return in
addition to the capital gains opportunity.
The allocation itself and the values ascribed to the individual
stores, the GP, and the trademark entity are themselves a
potential bone of contention. Therefore, careful consideration of
the future cash flows allocable to the GP and trademark entity,
such as the selection of an appropriate royalty rate that should
be used to determine future cash flows to the trademark entity,
is critical to the analysis. As the value allocated to these two
entities will not be allocated to the LPs, the valuation of both
entities needs to be thorough and defendable.
Alex W. Howard, CFA, ASA
Managing Director
Valuation & Financial Opinions
713.221.5107
ahoward@srr.com
Ronak P. Shah, CFA
Senior Vice President
Valuation & Financial Opinions
713.221.5103
rshah@srr.com
This article is intended for general information purposes only and is not intended to provide, and
should not be used in lieu of, professional advice. The publisher assumes no liability for readers’
use of the information herein and readers are encouraged to seek professional assistance with
regard to specific matters. All opinions expressed in these articles are those of the authors and
do not necessarily reflect the views of Stout Risius Ross, Inc. or Stout Risius Ross Advisors, LLC.
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