Unit 3abou information system presenatation

1. Precedent Transaction Analysis
The precedent transaction analysis is a valuation method in which the price paid for same companies in the past is considered
an indicator of a company’s value. It estimates the implied value of a company by analyzing the recent acquisition prices paid
in comparable transactions.
Precedent Transaction Analysis, also known as “M&A Comps,” “Comparable Transactions,” or “Deal Comps,” uses previously
completed mergers and acquisitions deals involving similar companies to value a business.
Precedent Transaction Analysis typically uses the same multiples as Comparable Companies’Analysis (or “Comps”). In
particular, Enterprise Value/Sales, Enterprise Value/EBITDA and Earnings/Earnings Per Share (EPS) are the most commonly
used metrics.
However, unlike in Comparable Company Analysis, the basis for value comparison is the price paid by the purchaser for a
business, rather than the traded market values of the company’s securities.
These prices can be different because there is a control premium—the value ascribed to being able to control a business rather
than simply own a percentage of the equity in it. Thus, Precedent Transaction Analysis will typically result in valuations that
are higher than standard Comparable Company Analysis.

3. Relative Valuation Model
A relative valuation model is a business valuation method that compares a company's value to that of its
competitors or industry peers to assess the firm's financial worth. Relative valuation models are an alternative to
absolute value models, which try to determine a company's intrinsic worth based on its estimated future free
cash flows discounted to their present value, without any reference to another company or industry average.
Like absolute value models, investors may use relative valuation models when determining whether a
company's stock is a good buy.
•A relative valuation model compares a firm's value to that of its competitors to determine the firm's financial
worth.
•One of the most popular relative valuation multiples is the price-to-earnings (P/E) ratio. A company with a high
P/E ratio is trading at a higher price per dollar of earnings than its peers and is considered overvalued. Likewise,
a company with a low P/E ratio is trading at a lower price per dollar of EPS and is considered undervalued.
•A relative valuation model differs from an absolute valuation model which makes no reference to any other
company or industry average.
•A relative valuation model can be used to assess the value of a company's stock price compared to other
companies or an industry average.

5. EPS and Multiplies
• The earnings multiplier, or the price-to-earnings ratio, is a method used to compare a company’s current
share price to its earnings per share (EPS).
• It is used as a valuation tool to compare the share price of a company with that of similar companies. The
earnings multiplier also shows how much an investor will be paying for one dollar earned by the company.
• The earnings multiplier can be used to assess a company’s financial health. The price-to-earnings ratio of
several companies can be compared while making investment decisions.
• The earnings multiplier calculates the return an investor will get against the invested amount. Furthermore,
a company’s share price depends on the future value of the company issuing the shares. It also shows the
performance of a company compared to its industry counterparts.

6. Basis Senstivity Analysis Probability Analysis
Measurement It measures how the output changes when one or
more input variables are changed while keeping the
other variables constant.
It estimates the likelihood of different
outcomes based on the probability
distributions of the input variables, which can
be random or uncertain.
Purpose Its primary purpose is to assess how variations in input
variables or assumptions impact the outcomes or
output of a model or decision. It focuses on
understanding the sensitivity of a model’s result to
specific factors.
It aims to determine the likelihood of various
outcomes or scenarios by incorporating
probability distributions for input variables. It
provides insights into the range of potential
outcomes and their associated probabilities.
Methodology This technique involves modifying one or more input
variables while keeping others constant. It observes
the resulting changes in the output by varying input
parameters within predefined ranges.
It assigns probability distributions to input
variables and conducts multiple simulations to
generate a distribution of potential outcomes.
It provides a comprehensive view of
uncertainty by simulating various scenarios.
Nature It is deterministic in nature, focusing on the impact of
specific variable changes while holding other factors
constant.
It is probabilistic considering the entire
spectrum of uncertainty by incorporating
probability distributions for multiple variables
and producing a range of potential outcomes.

7. Basis Senstivity Analysis Probability Analysis
Tools used One can use tools such as data tables, scenarios or
goal seek to perform sensitivity analysis in Excel.
One can use tools such as simulation,
histograms, or cumulative charts to perform
probabilistic analysis in excel.
Example Consider an investment decision for a new product.
Senstivity Analysis may involve adjusting key variables
like sales volume, selling price, and production costs
one at a time. It reveals how changes in these
variables affect the Net Present Value (NPV)
In a project evaluation with uncertain
variables like inflation rate, demand growth,
and interest rates, probability analysis is
applied. Probability distributions are assigned
to these variables, and simulations of the
financial model are executed to create a
distribution of potential project outcomes.
This analysis estimates both the expected NPV
and the probability of achieving specific NPV
thresholds.