Transactions in identical assets in inactive markets - examples
Private market transactions
Active markets that become inactive
Market approach - methods
Quoted market price
Sales comparison method (e.g., real estate)
Guideline public company method
Comparative transaction method
Transactions in the identical or similar equity and debt of a company
Industry method (rules of thumb)
Market approach - steps
Identify comparable transactions or companies
Select an appropriate earnings metric
Calculate multiples
Select an appropriate multiple from the multiple range
Apply the multiple to the target’s earnings
Finance Balance Sheet - Asset side
+ Net Working Capital
+ PP&E
+ Non-operating assets (incl. cash)
+ Intangible assets and goodwill
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= Invested capital
- Non-operating assets (incl. cash)
= Enterprise value
Finance Balance Sheet - Debt & Equity side
+ Fair value of debt
+ Fair value of equity
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Adjustments to the multiple - types
Primary adjustments
Size
Growth
Business risk
Profitability
Key person
Depth of management
Product
Concentration
Asset
Technological
Financial
Regulatory and legal
What are the possible measurement periods for earnings?
Pro forma
Trailing twelve months
Last fiscal year
Year ahead
Average over x years or weighted average over x years
Last changeda year ago