Valuation Analysis

Valuation Analysis is the process of estimating the market value of a financial asset or liability. Valuations can be done on assets (for example, investments in marketable securities such as stocks, options, business enterprises, or intangible assets such as patents and trademarks) or on liabilities (for example, bonds issued by a company).

Activities included under valuation analysis cover, but are not limited to, the following:

Trading Comparables

Determining the current value of a company by using a sample of ratios from comparable publicly traded companies.

Precedent Transactions

Determining the current value of a company by using a sample of ratios from comparable transactions.

Discounted Cash Flow

A valuation method that uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value.

Leveraged Buyouts

Analyzing the acquisition of another company using a significant amount of borrowed money (bonds or loans).

Request & Guidelines Provided
  • Asked to work closely with a Portfolio Manager to arrive at intrinsic value for a steel company
  • Provided name of the steel company, available secondary research, broad outline of the equity report, and preferred valuation methodology
  • Constructed a financial model by understanding the intricacies of the company’s business and sector dynamics
  • Each of the company’s revenue streams were modeled and driven separately. The costs were reclassified keeping in mind their nature and relation to revenues
  • Used the DCF valuation technique to arrive at the company’s intrinsic value
  • Used guidance from ratios and multiples obtained from public market comparables to determine the value of the target company
  • Prepared a detailed equity memo using the top-down analysis of the company
Final Deliverable & Client Takeaway
  • Provided a flexible company financial model and equity memo to evaluate the investment opportunity