Equity Valuation

CERTIFICATE
The project entitled EQUITY VALUATION OF ANGLO EASTERN (AE or the Company)
is a bonafide record of the work done and submitted by
UDAYA BASRUR
Reg. No.: 540911400
During the fourth semester for the award of the Masters of business Administration
I certify that the project work is carried out by him as an independent work under my supervision and guidance.
Signature of the
Candidate
Signature of the
External Examiner
Signature of the
Internal Examiner
Signature of the
Centre Coordinator
Al Hikma-IAGS
Sikkim Manipal University of Health, Medical and Technological Sciences
Manipal, Karnataka - 576 119
PROFORMA FOR APPROVAL OF PROJECT PROPOSAL
MBA
Project Proposal No.
Enrolment No.
540911400
(P.P. No.)
Study Centre:
Dubai
Name and Address of the Student:
UDAYA BASRUR
P.O. Box 52194
Dubai, U.A.E.
Title of the Project
EQUITY VALUATION OF ANGLO EASTERN (AE or
the Company)
Subject Area
Name and Address of the Guide :
with reference to the state of
FINANCE____________________________________
Mr. V. Krishna Gopal___________________________

Chief Financial Officer, ______________________
Anglo Eastern_____________________
Dubai, UAE ___________________________________
Signature of Student
Signature of Guide
Date:
Date:
For Office Use only

SYNOPSIS
SUPERVISOR
Approved
Approved
Not Approved
Not Approved
Signature of
Director / Coordinator (Projects)
Date:
Comments / Suggestions for reformulating the Project
Udaya Basrur
Enroll. No.: 540911400
Dubai,
United Arab Emirates
DECLARATION
I here by declare that the present project work dissertation for the Degree of Master of
Business Administration in Finance on EQUITY VALUATION OF ANGLO EASTERN
of project work done by me during the period of Final Semester and that it has not
previously formed the basis for award of any Degree, Diploma, Associate ship, Fellowship
or other similar titles.
Countersigned
UDAYA BASRUR
MR. V. KRISHNAGOPAL
Guide and Supervisor
Dubai
July 2011
ACKNOWLEDGEMENT
Firstly, I sincerely thank the Almighty God for his glorious blessing infinite mercy, abundant
love and spiritual guidance all the way through my life. Then I extend my sincere thanks to
my parents for their valuable encouragement.
Secondly, I would like to thank the Management of the organization for allowing me to
study their organization structure and on the activities of Finance Department and Mr.
Krishna Gopal , the C.F.O who shared their valuable time even during his office timings,
and gave me full support and beneficial informations and tips to study and complete the
project.
I would also like to put my sincere thanks to my guide Mr. Krishna Gopal who ICWAI,
CMA- USA & MBA holder in the Finance. I appreciate for his brilliant t suggestions and
guidelines he put forward for the accomplishment of my project.
I would appreciate and convey my sincere thanks to Mr. Ahmed Rafi B. Ferry, CEO, Al
Hikma-IAGS and Mr. Shanavas, Academic Coordinator for all their support and ideas they
have guided me for the successful accomplishment of the project.
I was advised, assisted and guided by many people during the course of this project work. I
am indeed, grateful to all of them for enabling the successful competition of this project.
I also wish to convey my sincere gratitude and thanks to the Sikkim Manipal University
(SMU) and its officials for extending such an opportunity by providing MBA to gulf area to
enable ambitious candidates to fulfill their desire and improve their excellence in the
Business Management field.
Table No
Title
1. a
Summary of valuation range
1. b
Multiples analysis
1. c
Discount rate calculations
1. d
Equity value
1. e
PE multiple value (Xs)
2. a
Free cash flow over projection period
2. b
Terminal Value
2. c
The fair market value
3. a
Summary of profitability
3. b
Summary of profitability Income data
3. c
Results and assumptions Income statement
3. d
Results and assumptions Operating expenses
3. e
Results and assumptions A&G expenses
3. f
Results and assumptions Working capital Analysis
1.1 a
Clients Base
1.1 b
Current contracts
2.1 a
Income statement
2.1 b
Balance sheet
2.1 c
Cash flow statement
3.1 a
Glossary
Figure No
Title
1. 1a
Base case valuation Bridge
1. 2b
Free cash flow projection
2. 1a
Profitability
2. 2b
FY08 Revenue break-up
2. 3c
Clients base value
2. 4d
Salary & benefits
3. 1a
Investigation expenses
3. 2b
Staff Cost
3. 3c
Income statement
3. 4d
Operating Expenses
3. 5e
Admin & General Expense
4. 1a
Current contract Top 10
4. 2b
Income statements
Contents
Section 1 Valuation Summary
Page
1. Scope of Valuation
12
2. Methodology
15
3. Summary of valuation range
20
4. Multiples Analysis
21
5. Discounted rate calculation
23
6. Sensitivity analysis- non marketable, minority Interest
24
Section 2 Valuation Working

7. Free cash Flows over the projection period
28
8. Terminal value
30
9. The Fair market value
32
Section 3 Managements Projections

10.Summary of Profitability
34
11. Adjustment to the audited financial statements
39
12.Financial results and assumptions-Income Statement
40
13.Financial results and assumptions-Operating Expenses
43
14.Financial results and assumptions-A&G Expenses
46
15.Financial results and assumptions-Working capital analysis
49
Appendix 1 Company Overview
Page
1. Companys Overview
51
2. AE Achievements Copyright
52
3. AE Achievements Trademark
53
4. AE Achievements Internet Piracy
53
5. AE Client Base
56
6. AEs Current Contracts

7. AEs top ten Clients
57
59
Appendix 2 Financial Statements

8. Income statement
61
9. Balance Sheet
63
10.Cash Flow statement
64
Appendix 3 Scope, Process and Limiting Conditions

11. Scope of work
66
12.Source of information
66
13.General limiting conditions
67
14.Specific limiting conditions
68
Appendix 4 Glossary
70
Recommendations & conclusions
73
Reference and Bibliography
77
10
Section 1
Valuation Summary
Scope of Valuation
11
Assessing the fair market value of Anglo Eastern as at 31st of December 2010
The valuation presentation will consider the fair market value, as defined bellow;
Using the Discounted Cash Flow (DCF) method as the primary method of
valuation. The value derived from the DCF method by benchmarking it against
market multiples of comparable listed companies.
Fair market value is defined as the price which might be reasonably be expected to be
obtained in money or moneys worth, in a sale between a willing buyer and willing
seller, each of whom is deemed to be acting for self interest and gain and both of
whom are equally well informed about the business and the market in which they
operates.
I undertook an analysis of the financial projections including revenues, expenses,
working capital and capital expenditure. This involved a comparison with historical
operating results, market tends and expectations.
The DCF method indicates the value of a business based on the net present value of
the cash flows that the business can be expected to generate in the future.
By its very nature, valuation work is not an exact science and the conclusions arrived
at will of necessity be dependent on the exercise of individual judgment. Other
information that I reviewed during the course of this valuation, publically available
research material to assist in assessing equity premiums, country risk etc.
I undertook an analysis of other facts and data, including those specific to the
company and the industry in which it operates, which I considered pertinent to this
valuation, to arrive at the fair market value
The decision as to the scope of work & what action to take must ultimately remain
decision for top management.
Before You Sell/Buy your Company, Conduct a Business Valuation

12
If youre preparing to sell your business, you'll first need to know how much your company
is worth by conducting a business valuation. It will give you, your investors and potential
buyers a good idea of what your businesss value is by looking at both tangible assets like
real estate and cash, as well as intangible assets like intellectual property.
The following are a few business valuation methods used by businesses to determine their
worth.
Asset Business Valuation
Asset valuation measures the worth of your assets, such as inventory, equipment and real
estate. Asset valuation works best if you don't have a profitable business and are looking to
liquidate. While this is a fairly simple and popular method of business valuation used by
asset-based small businesses, experts warn that it does not accurately reflect the total value
of your company.
If a company has $500,000 in assets such as computers, for example, the worth of the
business is not automatically $500,000. A business valuation should account for what the
companies do with those computers to create revenue and profits.
Asset valuation also does not measure intangibles, such as the goodwill of a company,
according to Stan Feldman, chairman of Axiom Valuation Solutions and a finance professor
at Bentley College. The goodwill of a company could include a loyal customer base or a
solid relationship with suppliers. An appraiser can help integrate your company's goodwill
into a business valuation.
Market Business Valuation
Also called the rule of thumb or market multiplier method, this determines the worth of your
business based on a multiplier set by your industry. For example, the benchmark for valuing
companies in your industry may be three times sales. Therefore, you could theoretically
value your company at three times its revenue. This method relies on industry averages,
however, and may not reflect the true value of your small business.
Earnings Business Valuation
This is also called income-based business valuation or the capitalization of earnings method.
Earnings valuation determines the worth of your company based on historic earnings. This
13
method works well for valuing companies with strong intangible assets because it only
calculates earnings and takes into account the risks for buying your business. It does not
distinguish between the worth of tangible and intangible assets. Earnings valuation cannot
predict future earnings as well as discounted cash flow, however.
Discounted Cash Flow

Discounted cash flow is a complicated method that projects future earnings. It is used to
estimate the future cash flows of your company, excluding capital expenditures and
increases in working capital, or the money needed to run the business.
Feldman prefers this method for companies that have historically been profitable, citing
academic research that indicates it is the most valuable method for determining the worth of
a company. A financial analyst or account should be used to determine future earnings.
Tips Before Conducting a Business Valuation
Value is relative. Just as your business is unique, so too is its structure and value: Your
cash flow may be strong, but your earnings may be below industry average. Or perhaps
you have valuable intangible assets, such as a loyal customer base or patents. The
process can be subjective and influenced by factors that a seller can't control, such as
industry forecasts and the economy.
Get started early. You will want to conduct a business valuation years before a sale,
particularly if you want to increase earnings or cash flow in order to raise the asking
price. You'll need to show the last three years of financial statements to a prospective
buyer, so valuing your company four or five years prior to a sale is a good strategy if you
want to increase its value prior to eventual sale.
Do your homework. Because business valuations are often complicated and different
methods are preferred in different industries, it's best to research valuations thoroughly
and employ financial advisers particularly business valuation specialists before
proceeding with a sale. To find an appraiser, check with other small business owners,
including competitors who may want to buy your business or the American Society of
Appraisers.
14
METHODOLOGY
The discounted Cash Flow (DCF) analysis was the primary valuation methodology
used to arrive at a base case equity value for AE, that has been presented as a range of
+/- 15% of the base case value. The DCF analysis was used as it is generally
considered the most appropriate method for valuing business, as it considers the time
value of money and takes into account the impact of working capital requirements.
A risk adjusted discount rate of 15% was applied for the projection period, and the
terminal period. The discount rate was computed using the Capital Asset Pricing
Model (CAPM) based on the following variables.
A marketability
discount of 20% was applied to the valuation of AE. The
marketability discount to typically applied to the valuation of a privately held entity

to reflect the fact that an equity investment in a private company is not a liquid as that
of a publicly trade company.
I have assumed that the contemplated transaction will involve a minority stake,
accordingly I have applied a 15% minority discount to account for the lack of
control /influence associated with minority stakes in a company.
The rate at which forecasted cash flows are discounted (the discount rate) should
reflect not only the time value of the cash flows, but also the risk associated with the
operations of the business.
Here separately valued the Residential Flat owned by the Company. Based on current
market rate & Real estate brokers with arrived at a value of AED. 8,200,000 for the
Residential Flat.
15
Earnings methodology;
An earnings-based approach estimates a sustainable level of annual earnings for a

business, also called maintainable earnings and applies a suitable multiple to those
earnings, thereby capitalizing them into an indicative value for the business.
In considering the maintainable earnings of the business being valued, factors to be

taken into account include whether the expected level of future operating
performance of the business reflects its historical performance and the life cycle
stage of business at the valuation date (e.g. the extent t which the business has
reached a mature, stabilized period of revenue generation, as opposed to the expected
level of stabilized earnings not being generated until some time in the future).
With regard to the multiples applied in any valuation, they are generally based on data
from listed companies and transactions in a comparable sector, but with consideration
given to the specific characteristics of the business being valued.
Free Cash Flow over the Projection period;

Free cash flow to the firm are calculated before interest payable on debt and interest
receivable on cash balances because interest payable is a financing cost reflected in
the discount rate.
The Free Cash flow to Equity model is to be used to value firms that process debt as
well as firms that do not payout more than 90% of earning as dividends. Many firms
will reinvest their earning bank into company and these reinvested earning will not
shown up as dividends. Using the Gordon Growth Model would thus value the equity
incorrectly. It is important to note that this model bases its valuation on cash flows to
equity, and the cash flows are created after debt payments are taken out.
16
DCF analysis
The Updated Guidelines appear biased against DCF analysis even though this is a
technique recognised by the Reporting Standards and represents standard market
practice for certain assets (such as infrastructure). While we understand that DCF
analysis is not typically the primary valuation methodology for a private equity
groups investments it can be useful as a cross check especially for material
investments, early-stage investments or in those rare circumstances where no
comparable companies exist. Where DCF is used, we believe that it is still important
to calibrate the underlying assumptions to market data such as analysts reports or
other industry analysis. With respect to discount rates, in order to arrive at Fair value
it is important to base the inputs on those of a market participant rather than the
holder of the investment.
Option value of equity

For investments in companies in distress where potential covenant breaches have been
identified or where the amount of debt appears to be higher than the investments Enterprise
Value, i believe that the potential for option value of equity needs to be considered.
As discussed above in Section 8, in scenarios where the sale of the equity investment will
trigger a change of control provision on the debt, the Fair value of debt is not expected to be
an issue because Fair value is based on a hypothetical sale price at the Reporting Date and if
the sale of the equity investment triggers a change of control provision, debt will likely be
settled at face value. We have provided an illustrative to highlight why the deduction of debt
at face value may result in zero option value being attributed to equity in some
circumstances.
However where no change of control provision exists, for instance in the case of a minority
equity interest, the equity holder may be able to sell its interest without triggering a
settlement of the portfolio companys debt at face value. In such instances, the Fair value of
that debt will reflect any favorable financing. By avoiding settlement of the debt at face
value when the equity interest is sold, the minority equity holder is able to transfer the
benefit of favorable financing to the secondary buyer of the equity interest.
The benefit of having time for a portfolio company to turn around its financial performance
means that the ability to exploit favorable financing over the term of a debt agreement may
translate into incremental value for equity holders. This incremental value may not be
evident if debt is deducted at face value under the traditional waterfall approach. Favorable
17
financing typically translates into debt with a Fair value that is below its face value and
deduction of debt at the lower Fair value enables the recognition of the option component to
Equity Value.
In such situations or where portfolio companies are generally experiencing difficulties, the
Updated Guidelines do not provide guidance on how to assess whether the equity has been
fully impaired and what techniques can be used to measure any option value. We have
observed more consideration of probability weighted models in valuation techniques in the
US and believe that this may be useful in considering option value to equity which, on the
face of it, appears to be underwater.
An example of the probability-weighted model is the multiple outcome approach which,
in contrast to the traditional waterfall approach, involves a forward-looking analysis of the
possible future outcomes available to the enterprise. This comprises the estimation of ranges
of current and future value under each outcome and the application of a probability factor to
each outcome as of the Reporting Date to arrive at an expected value. By considering only
one scenario for a distressed company which would typically be settlement of the debt at
face value (or lower depending on available proceeds from a sale of the enterprise), the
traditional waterfall approach may overvalue debt and undervalue equity by ignoring the
option value of equity,
The high and low scenarios are of equal probability and some value to equity is provided in
the high scenario with an Enterprise Value of 420m, (we note that there would need to be
proper justification of underlying assumptions if this technique was to be applied) as
opposed to 100m in the low scenario, providing a probability weighted expected value of
260m. This may mean that there is some value to equity which an acquirer might also
identify in this case 10m for the equity compared to zero under the traditional waterfall
approach.
The low scenario might represent a situation where the companys performance is
deteriorating such that the debt holders may, at some point, be able to take over the business
thereby extinguishing all Equity Value. The high scenario might represent a situation where
the absence of a change of control provision means that the equity holders are able to sell
their stake at the Reporting Date without being forced to repay debt at face value.
It is crucial to consider the position of the debt holders and it may be that covenant breaches
mean that the debt holders already have effective ownership of the entity and any Equity
Value is therefore extinguished at that point. We therefore note that the option value of
equity may be a more relevant consideration where debt covenants have not yet been
breached. We also note that the option value of equity can be impacted not only by the Fair
value of debt but also other securities which rank above it in terms of liquidation preference
18
so that it may be necessary to consider the Fair value of preference shares in more complex
capital structures.
Given the recent downturn in the economy, the discussion above focuses on scenarios where
companies are distressed or experiencing difficulties. We have set out below other scenarios
where the Fair value of debt and / or preference shares should be considered, both from a
comparable company and portfolio company perspective;
Expected term - given the changes in the credit and equity markets, leveraged
buyouts that were expected to be exited in two to three years may now have
considerably longer terms than were contemplated in the original analysis or
pricing of the debt;
Off market covenants - prior to dislocation in the credit markets, debt securities
were sometimes issued with limited protections afforded to the lender. Such
covenant-lite debt may have limited or reduced marketability in the current
environment, which in turn impacts its Fair value; and
Widening spreads - general market conditions have resulted in significant
tightening of credit markets reflecting the increased perceived risk of bankruptcy
and of other financial difficulties (as observed by widening yields on debt
securities).
These factors require careful consideration in arriving at the Fair value of equity stakes
when a sale of the equity interest does not trigger a change of control provision on debt.
19

Table 1. a
Summary of Valuation Range

Valuation of AE
Enterprise
Value
Non- operating assets

& surplus cash
Interest bearing
obligation
Marketability
discount
=
Low
$ 375,0000
Value of Equity
High
$ 440,000
$500,000
PE Multiple
7.4
8.7
9.9
+
Value of Residential Flat
Valued by the management
USD 2,200,000
(Current market value

according to real estate brokers)
=
USD 2,575,000
USD 2,640,000
USD 2,700,000
20

Table 1. b
Multiples Analysis
AE Marketable/Minority Value
LOW
BASE
HIGH
$
375,000
$
440,000
$
500,000
$50,446
Adjusted FY08 Net Income
7.
exchangesP/E Multiples of various
P/E
DFM
ADSE
S&P 500
8.
7
9.
9
6.
0
6.
6
10.
3
10.
MSCI World
21
Graph 1. 1a
Figure 1. 1a Base case valuation bridge

AE bridge analysis; from enterprise value to equity value for the base case scenario
775,388
(109,000)
(96,000)
1,441
435,525
(138,304)
Enterprise Value
Marketability
Discount
Minority
Interest
Interest
bearing
obligation &
debt like
items
Non
operating
assets &
surplus
cash
Equity Value
22
Table 1. c
Discount rate calculation for AE

Risk-free rate
((1+ Rf) x
2.2%
For
the
purposes of
analysis the
yield
to
maturity on
the US 10
year
Treasury
bond
has
been used a
proxy for the
risk free rate
to calculate
the discount
rate of AAA
Country risk premium
(1+
Company Specific Premium
Market risk Premium
Discount Rate
CRP)- 1) + CSP + x MRP = Re
1.5%
Since
the
company is
based in the
UAE
and
since
the
UAE has no
long dated
government
securities
that can be
considered
risk free a
country risk
premium is
applied
to
the risk free
rate
to
account for
any disparity
in the risk
ratings for
the UAE and
the US
3%
A premium
specifically
applied to
AAA
which
investors
will
demand
when
investing in
a stake of
this private
company
1%
A
quantitative
measure of
the volatility
of a share
relative
to
the overall
market. We
believe that
AAAs
business
moves
in
line
with
market
conditions,
thus
assigning a
beta of 1 (the
market)
The 8%Market
risk premium is
the additional
return in excess
of the risk free
rate that is
demanded by
the investors to
compensate
them for the
additional risk
inherent
in
such
investment
vehicles. Based
on research, an
appropriate
market
risk
premium
for
developed
markets
in
4.5%.
A
premium
of
3.5% has been
added to reflect
the additional
returns
required
by
investors
in
less
mature
markets such
as the UAE
15%
23
Table 1. d
Sensitivity analysis non marketable, minority interest

Sensitivity Analysis;
Equity Value ($)

Long term growth rate
Discount rate
13%
15%
17%
1%
439,000
404,000
371,000
2%
474,000
436,000
401,000
3%
515,000
473,000
435,000
Set out opposite is a sensitivity analysis of the valuation of AE to the discount

rate and the long term growth rate.
If assume the terminal value growth rate to range between 1%-3% and the
discount rate to a range between 13% - 17%, the equity value of AE falls within
the range of USD 371,000 to USD 515,000.
24
Table 1. e
PE Multiple (Xs)
Long term growth rate
Discount rate
13%
15%
17%
1%
8.7
8.0
7.4
2%
9.4
8.6
7.9
3%
10.2
9.4
8.6
From the calculations, the PE multiple for AE range between 7.4 and 10.2 times
adjusted FY08 earning, with our base case multiple being 8.6
Marketability discount and control premium

The Updated Guidelines now suggest that consideration of the risk associated with a lack of
marketability should be incorporated within market multiples under the market approach
alongside other considerations such as size, growth and risk. This has the effect of applying
the discount at the Enterprise Value level i.e. against both equity and debt even though the
effect of adjustments such as marketability discount and control premier is typically
observed at the Equity rather than Enterprise Value level. We note that applying an
adjustment to the multiple to reflect a lack of marketability at the Enterprise Value level
rather than the Gross Attributable Enterprise Value level under the previous Guidelines, will
generally reduce the marketability discount percentage compared with previous practice
depending on the level of gearing in the portfolio company. We illustrate this in Figure 3
below where a 20% marketability discount, which under the previous Guidelines was
25
applied at the Gross Attributable Enterprise Value, would result in a significantly lower
value for a 10% equity stake of 0.6m as opposed to 2m if the same 20% adjustment was
made to the EBITDA multiple. To arrive at the same Fair value for the 10% equity stake as
in the previous Guidelines would mean a discount of only 5% being applied to the EBITDA
multiple:
The US perspective
The U.S. Private Equity Valuation Guidelines were updated in March 2007 in response to
FAS 157
In September, 2006, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 157, Fair Value Measurements
The Updated U.S. Private Equity Valuation Guidelines were intended to assist
managers in their estimation of fair value and were intended to be consistent with
FAS 157 and the AICPA Audit and Accounting Guide - Audits of Investment
Companies
The AICPA Guides definition of Investment Companies includes Private Equity
Investors and requires investments to be reported at fair value
Private Equity CFOs in the US have found the IPEVCG to be conceptual rather than
prescriptive
The U.S. Private Equity Valuation Guidelines already suggest that marketability
discounts can be built into the multiple
The U.S. Private Equity Valuation Guidelines are a less prominent reference guide
compared to the IPEVCG.
26
Section 2
Valuation Workings
27
Section 2 Valuation Workings
Table 2. a
Free cash flows over the projection period
USD
Earning before taxes and

minority interest
Additions/(substations):
Depreciation
Finance cost (interest portion)
FY10
Projected
FY11
Projected
FY12
Projected
FY13
Projected
FY14
Projected
Terminal
Year
48,95
1
74,15
4
68,10
9
73,91
9
84,65
0
84,65
0
40,19
8
10,75
7
44,23
8
3,99
3
48,23
8
48,23
8
44,23
8
52,76
1
(11,77
6)
2,80
6
8,62
5
2,83
0
2,83
0
73,46
9
(13,91
6)
79
0
8
5
1,07
7
1,07
7
5,19
3
8,00
0
13,50
1
9,00
0
12,79
7
12,79
7
231,33
0
104,69
2
133,44
5
139,86
7
145,59
2
145,59
2
(8,00
0)
231,33
0
104,69
2
125,44
5
139,86
7
145,59
2
145,59
2
Working capital movements

Movement in trade receivables
Movement in trade & other
payables
Net movement in end of
service benefits
Movement in trade & other
payables
Cash flow from operations
Less capital Expense
Free cash flow to the firm
28
Figure 1. 2b
Free cash flow projection

250,000
200,000
150,000
100,000
50,000
0
FY10
FY11
FY12
FY13
FY14
Terminal
Free cash flows to the firm (FCFF) are defined as;

Earning before taxes and minority interest
Add:
Depreciation & amortization
Add:
Net increase / (decreases) in working capital
Less:
Capital Expenditure
Equals
Free cash flow to the firm
FCFF are calculated before interest payable on debt and interest receivable on
cash balance because interest payable is financing reflected in the discount rate.
Definition
Operating cash flows (net income plus amortization and depreciation) minus capital
expenditures and dividends. Free cash flow is the amount of cash that a company has left
29
over after it has paid all of its expenses, including investments. Negative free cash flow is
not necessarily an indication of a bad company, however, since many young companies put
a lot of their cash into investments, which diminishes their free cash flow. But if a company
is spending so much cash, it should have a good reason for doing so and it should be earning
a sufficiently high rate of return on its investments. While free cash flow doesn't receive as
much media coverage as earnings do, it is considered by some experts to be a better
indicator of a company's financial health.
Table 2. b
Terminal Value - AE
Terminal Value Calculation
USD
Terminal Period
Terminal Value period cash Flows
145,592
Discount Period
WACC
Present value factor
Long-term growth rate
Terminal value
4.8
15%
0.51
2%
1,142,337
Net Present value of terminal value
581,328
The terminal value represents the present value of all future cash flows projected to
be generated by AE beyond the last year of the explicit projection period into
perpetuity.
I have used the following cash flow into perpetuity formula to calculate the terminal
value;
30
Terminal Value = (Projected maintainable cash flows) x (1+g)

(WWCC-g)
Where:
WACC
= weighted average cost of capital
= expected growth rate into perpetuity
I have equated FCFF in FY14 to the terminal year cash flows so as to arrive at the
maintainable cash flows in the terminal period. Furthermore, in the terminal period,
depreciation and capital expenditure are assumed to offset each other.
When calculating the terminal value cash flows, depreciation, capital expenditures
and operating working capital investments were normalized to match the long-term
expectations of market maintenance.
In determining the present value of AEs expected cash flows into perpetuity, we have
assumed a growth rate of 2% which is equal to the projected long-term growth rate
for the economy.
Set out opposite are the calculation of the terminal values of AE
Look at the past
The historical growth in earnings per share is usually a good starting point for growth
estimation
Look at what others are estimating
Analysts estimate growth in earnings per share for many firms. It is useful to know
hat their estimates are.
Look at fundamentals
Ultimately, all growth in earnings can be traced to two fundamentals - how much the
firm is investing in new projects, and what returns these projects are making for the
firm.
Historical growth rates can be estimated in a number of different ways
Arithmetic versus Geometric Averages
Simple versus Regression Models
Historical growth rates can be sensitive to
The period used in the estimation
31
In using historical growth rates, the following factors have to be considered

how to deal with negative earnings
The effect of changing size
Table 2. c
The Fair market value of AE as at 31st December 2009, after the application
of a 20% marketability discount and a 15% minority interest discount in
USD 440k.
Equity Value
FY10
FY11
FY12
FY13
FY14
USD
Projected
Projected
Projected
Projected
Projected
Net free cash flows
231,330
104,692
125,445
139,867
145,592
Adjust for rent on the CEO Residential Flat
(100,000)
(100,000)
(100,000)
(100,000)
(100,000)
Discount rate
15%
15%
15%
15%
15%
Discount period (mid - period discounting)
0.42
1.33
2.33
3.33
4.33
Discount factor
0.944
0.832
0.725
0.632
0.551
Discounted cash flows - projected period
124,015
Net present value of free cash flows (FY09 - FY12)

Net present value of terminal period cash flows
(FY09 - FY12)
196,706
25%
581,328
25%
Enterprise Value
778,034
Add: Non-operating assets and surplus cash
1,441
Less; Interest bearing obligations and debt like items

Indicative value of equity (marketable, controlling
basis
(138,304)
3,906
18,459
25,205
25,121
641,171
32
Marketability discount
Indicative value of equity (non-marketable,
controlling basis) of AE
(128,234)
Minority Discount
Indicative value of equity (non-marketable,
Minority interest) of AE
(76,940)
20%
512,937
15%
435,997
Section 3
Managements Projections
33
Table 3.a
Summary of Profitability
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
USD
Audited
Audited
Audited
Projected
Projected
Projected
Projected
Projected
Revenue
1,678,01
9
1,874,95
2
1,831,94
9
1,758,67
1
1,723,49
8
1,757,96
8
1,775,54
7
1,793,30
3
Operating Profit
767,06
0
786,30
6
644,36
4
640,60
1
627,19
5
632,44
5
637,00
3
658,33
9
Operating profit margin %
45.7%
41.9%
35.2%
36.4%
36.4%
36.0%
35.9%
36.7%
252,25
4
15%
193,78
3
10%
41,23
0
2%
52,13
9
3%
74,15
4
4%
68,11
0
4%
73,92
0
4%
84,65
1
5%
Net Profit
Net profit margin %
Figure 2.1 a
34
Operating Profit
800,000
767,060
Net Profit
786,306
700,000
644,364
640,601
627,195
632,445
637,003
658,339
600,000
500,000
400,000
300,000
252,254
193,783
200,000
100,000
41,230
52,139
74,154
68,110
73,920
84,651
0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
A snapshot of the historical and projected income statements in provided in the above
table. The assumptions, which have been used to generate the projection have been
discussed in the following pages.
Section 3 - Managements Projections
Figure 2.2 b; FY08 Revenue break - up
35
Figure 2.3c; Current clients value
36
Key Point: AEs top 10 contracts make a significant portion of their revenue.
AEs holds annual contracts with clients, where the value of such contracts
range from USD 5,000 to over USD 180,000. over 70% of AEs total revenue
is generated from AEs top 10 clients.
Despite this concentration of credit risk, the companys has a diversified client
base operating across a variety of different industries and sectors.
37
Table 3. b
Income Data
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Audited
Audited
Audited
Projected
Projected
Projected
Projected
Projected
Operating Profit
767,06
0
786,30
6
644,36
4
640,60
1
627,19
5
632,44
5
637,00
3
658,33
9
Salaries and benefits
584,90
1
737,72
3
719,45
7
733,48
4
704,72
0
718,95
4
733,40
2
733,68
1
95,39
4
174,94
2
275,01
5
176,69
5
172,35
0
176,51
0
181,59
3
187,07
5
176,72
3
315,59
4
330,36
3
348,13
8
338,24
4
348,49
3
348,59
3
355,37
4
Operating Profit margin

(%)
46%
42%
35%
36%
36%
36%
36%
37%
35%
39%
39%
42%
41%
41%
41%
41%
6%
9%
15%
10%
10%
10%
10%
10%
11%
17%
18%
20%
20%
20%
20%
20%
USD
Investigation
Staff Costs
Investigation
Staff Costs
38
Figure 2.4d
Salary and benefits

800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY13
FY14
Figure 3.1 a
Investigation
300,000
250,000
200,000
150,000
100,000
50,000
0
FY07
FY08
FY09
FY10
FY11
FY12
39
Staff costs
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Key Points: AEs salaries and benefits and staff costs are largest expense incurred by the
company, representing, on average, 66% of total expenses over the projection period, since
staff costs account for a significant proportion of AEs expenses, an adjustment to these
costs can have a significant impact on the profitability of AE.
Adjustment to the audited financial statement

Adjustments and Modifications to the Audited Financial Statement and Management
Accounts
For the purpose of valuation, several adjustments were made to the financial
statements and management accounts, a brief summary of which are set out below;
Certain expense categories in the management accounts were reclassified and
adjusted to conform with the presentation of the audited financial statements.
40
Depreciation expenses were adjusted to reflect the expected depreciation expense that
should have occurred both historically and in the projection period. However,
depreciation does not have any impact on the valuation of the company
Retained earnings calculations in the management accounts were adjusted to conform
with the calculations in the audited financial statements.
The invest bank has been presented as a regular loan on the financial statements goin
forward. Therefore any cash flow movement indicated in the cash flow movement
indicated in the cash flow statement is assumed to impact only the EBI overdraft
account.
Table 3. c
AE Financial results and assumptions; income statement
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
USD
Audited
Audited
Audited
Projected
Projected
Projected
Projected
Projected
Revenue
1,678,01
9
1,874,95
2
1,831,94
9
1,758,67
1
1,723,49
8
1,757,96
8
1,775,54
7
1,793,30
3
(910,95
9)
(1,088,64
6)
(1,187,58
5)
(1,118,07
0)
(1,096,30
3)
(1,125,52
3)
(1,138,54
4)
(1,134,96
4)
Operating expenses
41
767,06
0
786,30
6
644,36
4
640,60
1
627,19
5
632,44
5
637,00
3
658,33
9
Operating profit margin %
45.7%
41.9%
35.2%
36.4%
36.4%
36.0%
35.9%
36.7%
Other income
27,67
9
2,70
4
4,18
9
(435,17
1)
(500,53
8)
(500,16
0)
(518,40
1)
(498,81
0)
(510,09
7)
(508,84
5)
(523,45
0)
Resulting from operating

activities
359,56
8
288,47
2
148,39
3
122,20
0
128,38
5
122,34
8
128,15
8
134,88
9
Depreciation
(45,72
2)
(44,93
5)
(67,02
3)
(48,23
7)
(44,23
8)
(48,23
8)
(48,23
8)
(44,23
8)
Finance Cost
(61,59
2)
(49,75
4)
(40,14
0)
(21,82
4)
(9,99
3)
(6,00
0)
(6,00
0)
(6,00
0)
Net profit for the period
252,25
4
193,78
3
41,23
0
52,13
9
74,15
4
68,11
0
73,92
0
84,65
1
15.0%
10.3%
2.3%
3.0%
4.3%
3.9%
4.2%
4.7%
Operating profit
Admin & general

expenses
Net profit margin %
AE Financial results and assumptions; income statement

Graph 3.3 c
42
Income statement
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
FY07
FY08
FY09
Revenue
FY10
Operationg Profit
FY11
FY12
FY13
FY14
Netprofit for the period
The pronounced increase in revenue form FY07 to FY08 was primarily attributable of
the addition of 2 new clients, Showtime and orbit , resulting in an increase in revenue
of USD 200k. revenue reduced from FY08 to FY09 largely due to loss of the Nokia
contract, amounting to expected reduction in revenue of USD 8k per month starting
April 2009.
The table above summarizes the historical consolidated income statement of the
business, as well as projections the figures for FY10 and FY09 have been audited by
ASP AUDITORS.
The projected decreases in total revenue of 4% and 2% in FY10 and FY11,
43
respectively. This retardation in revenue is primarily attributable to the following;

Losses of key contracts such as the USD 150k MPA contract and the USD 54k
combined from companies in the electrical industry.
Reductions in the value of certain contracts by regular customers such as Sony
(USD 100k, USD 75k), Nike (expected to reduce from USD 95k to USD 60k)
Microsoft (expected to reduce by a total of 21k) due to the current economic
downtown.
Management expects revenue to increase by 2% in FY12 and 1% thereafter as the

market recovers and the company in able to sign on new contracts.
As per above graph operating profit margins have reduced from 45.7% in FY09, and net
profit margins have reduced from 15% in FY07 to 2.3% in FY09. Reduction in operating
profit margins and net profit margins was primarily due to the increase in salaries and
benefits, staff costs and investigation expenses. When calculated on a percentage of revenue
basis, salaries and benefits and staff costs increased from approximately 45% in FY07 to
57% in FY09. At the same time, investigation expenses increased from 5.7% in FY07 TO
15% in FY09. In the projects the margins increase back for the projection period, primarily
due to the reduction of investigation expenses.
Table 3. d
AE Financial results and assumptions; Operating expenses

44
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Audited
Audited
Audited
Projected
Projected
Projected
Projected
Projected
% of revenues
910,95
9
54.3%
1,088,64
6
58.1%
1,187,58
5
64.8%
1,118,07
0
63.6%
1,096,30
3
63.6%
1,125,52
3
64.0%
1,138,54
4
64.1%
1,134,96
4
63.3%
584,90
1
737,72
3
719,45
7
733,48
4
704,72
0
718,95
4
733,40
2
733,68
1
USD
Total Operationg
Expense
% of Operating Expense
64.2%
67.8%
60.6%
65.6%
64.3%
63.9%
64.4%
64.6%
34.9%
95,39
4
39.3%
174,94
2
39.3%
275,01
5
41.7%
176,695.0
0
40.9%
172,350.0
0
40.9%
176,510.0
0
41.3%
181,593.0
0
40.9%
187,075.0
0
10%
16%
23%
16%
16%
16%
16%
16%
% of revenues
5.7%
9.3%
15.0%
10.0%
10.0%
10.0%
10.2%
10.4%
Telephone
42,01
6
36,49
0
36,04
4
46,94
3
45,10
2
45,55
7
45,57
1
45,58
8
% of revenues
Investigation Expense
4.6%
3.4%
3.0%
4.2%
4.1%
4.0%
4.0%
4.0%
% of revenues
2.5%
1.9%
2.0%
2.7%
2.6%
2.6%
2.6%
2.5%
5,64
8
7,61
8
7,50
3
7,21
1
7,06
6
7,20
8
7,28
0
7,35
3
Auto expense
0.6%
0.7%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
% of revenues
0.3%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
127,68
7
64,01
5
52,55
7
62,19
9
71,03
6
71,75
3
71,77
4
71,80
1
Travel
14.0%
5.9%
4.4%
5.6%
6.5%
6.4%
6.3%
6.3%
% of revenues
7.6%
3.4%
2.9%
3.5%
4.1%
4.1%
4.0%
4.0%
6,30
3
34,60
4
39,49
2
25,81
9
28,18
9
28,47
3
28,48
2
28,49
2
Business development
0.7%
3.2%
3.3%
2.3%
2.6%
2.5%
2.5%
2.5%
% of revenues
0.4%
1.8%
2.2%
1.5%
1.6%
1.6%
1.6%
1.6%
Legal & Representation &

PR
49,01
0
33,25
4
57,51
7
65,72
0
67,84
1
77,06
8
70,44
5
60,97
4
5.4%
3.1%
4.8%
5.9%
6.2%
6.8%
6.2%
5.4%
% of revenues
2.9%
1.8%
3.1%
3.7%
3.9%
4.4%
4.0%
3.4%
AE Financial results and assumptions; Operating expenses

Graph 3.4 d
45
Operating Expenses
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Investigation Expense
Telephone
Auto expense
Travel
Business development
Legal & Representation & PR
The increase in salaries and benefits was primarily attributable to the fact that salaries
for key management personnel were benchmarked to prevailing market rates. And
projected salaries and benefits to remain relatively constant as a percentage of total
revenue over the projection period. The decrease in FY11 is due to a reduction in
46
contracts and hence investigation activity.
Investigation chares relate to costs incurred by AE in relation to the identification and

seizure of counterfeit goods in the market & 80% of these costs passed over to the
customer. Investigation charges in FY08 and FY09 increased due to higher
municipality and warehouse charges. However going forward, management expects
investigation charges as a % of total revenue to decrease over the projection period
due to reduced warehouse fees for the storage of seized goods. Furthermore
municipality charges are expected to reduce as well.
Travel expenses reduced significantly in FY09 as the company made efforts to cut
down on travel and use budget airlines for travel. Despite decreases in revenue in
FY10 and FY11, and projected as increase in travel expenses on the back of new
potential MPA contract that would involve substantial travel to Europe.
Table 3. c
47
AE financial results and assumptions; Admin & general

expenses
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Audited
Audited
Audited
Projected
Projected
Projected
Projected
Projected
435,1
71
500,5
38
500,1
60
518,4
01
498,8
10
508,8
93
509,8
24
523,45
0
176,7
23
43,9
52
12,8
09
315,5
94
51,9
88
18,4
10
330,3
63
49,7
30
17,3
66
348,1
38
53,7
60
15,720.
00
338,2
44
53,7
60
15,720.
00
348,4
93
56,2
60
15,720.
00
348,5
93
56,2
60
15,720.
00
355,37
4
62,16
0
15,720.0
0
Professional Fee
16,8
86
15,0
56
15,0
59
27,3
00
15,3
00
15,0
00
15,0
00
15,00
0
Bad debts w/off
58,0
72
56,0
00
32,5
00
27,6
99
26,4
48
25,2
86
23,9
33
23,58
3
Provision for
Litigation
52,1
99
Misc.
74,5
30
43,4
90
22,9
50
21,5
44
23,6
99
23,6
99
23,6
99
23,97
3
Recruitment expenses
14,6
75
14,6
40
16,0
40
16,0
40
16,0
40
16,04
0
Insurance
17,5
17
9,6
00
9,6
00
9,6
00
9,6
00
9,60
0
USD
Total A&G
Expesens
Staff Costs
Office Rent
Supplies & postage
Graph 3.5 c
AE financial results and assumptions; Admin & general

expenses
48
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
FY07
FY08
FY09
FY10
FY11
00Sta
H Off
0!0Professi
H ! 0Bad
H 5DRecruitment
0
FY12
]S
/off
FY13
FY14
& postage
!o0Provision for Li
5 (DI
AEs staff costs (non-Managerial amount to a significant percentage of AEs total

cost. The jump in staff costs from FY07 to FY08 was due to hiring in 2008 during
which time the number of employees increased form 15 to 31. going forward, the
projected staff costs as a % of revenue to remain relatively constant at c.20% , with
increases in staff costs due to salary increment.
49
The higher professional fee in FY09 is attributable to the engagement of external

consultants by the company.
Significant write-offs were witnessed in FY07 and FY08 primarily due to non
payment of bills by Multichoice, a satellite company, and due to the setup and
eventual failure of a sister office in Pakistan. Aggressive collection efforts in FY09
resulted in significant reduction in write-offs. Going forward, management expects
such write-offs to average approximately 6.5% of A/R since the company now has
mostly, large established clients that have been with the company for an extended
period time.
The provision for litigation was made in FY07 to account for the fact that AE was
engaged in legal disputes with Saudi partner who owns the rights to the trade licence
in the Kingdom.
Table 3. f
AE financial results and assumptions; Working capital analysis

USD
Trade & other receivables
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Audited
Audited
Audited
Projected
Projected
Projected
Projected
Projected
651,60
5
633,64
3
473,52
2
466,819
478,595
475,789
467,164
464,334
50
Trade receivables
Turnover
Days
Other receivables &

prepayments
Turnover
Days
Trade & other Payables

Trade payables
Turnover
Days
Other Payables &

accruals
Turnover
Days
499,57
3
543,88
9
397,63
4
395,693
406,891
404,573
398,890
393,053
3.4
109
3.4
106
4.6
79
4.4
82
4.2
86
4.7
84
4.3
82
4.7
80
152,03
2
89,75
4
75,88
8
71,126
71,704
71,216
68,274
71,281
0.3
1,076
0.7
496
1.2
310
1.1
335
1.1
339
1.2
325
1.1
310
1.3
300
217,03
1
279,18
0
195,22
3
284,530
270,614
271,404
271,489
272,565
70,72
4
74,23
8
67,07
1
71,860
67,659
63,811
61,106
60,829
5.5
66
5.1
71
7.2
51
5.9
62
6.4
57
7.0
52
7.3
50
7.3
50
146,30
7
204,94
2
128,15
2
212,670
202,955
207,593
210,383
211,736
5.3
69
5.2
70
8.3
44
5.7
70
4.8
70
5.0
70
3.3
70
3.3
70
The decrease in trade receivable in trade receivable days between FY08 and FY09
was primarily attributable to the aggressive and determined efforts made by the
company collect form clients. Going forward receivable days are projected peak at
80 days in FY11 steadily decreasing to 80 days in FY14.
The decrease in trade receivable days between FY08 and FY09 was primarily
attributable to the aggressive and determined efforts made by the company to
collect from clients. Going forward, receivable days are projected peak at 80 days
in FY11, steadily decreasing to 80 days in FY14.
51
Appendix 1
Company Overview
Appendix 1- Company Overview
AE Overview
ANGLO EASTERN(AE) is located in City Tower 2 Sheikh Zayed Road, Dubai, UAE.
The Anglo Eastern (AE) evolved from the comprehensive anti-piracy program that
was established by the Motion Picture Association in 1996. The staff of the AE under
the MPA operation drastically reduced levels of piracy by emplacing an aggressive
52
campaign. the company has grown considerably, with established operations in the
UAE, Kingdom of Saudi Arabia, Bahrain & Kuwait,
AE has established program which is currently managing anti-piracy operations for

Motion Picture Association (Disney, Warner Brothers, Columbia Tristar, Twentieth
Century Fox, Universal, Paramount), MPA licensees, Business Software (Microsoft),
Pay Television (Showtime-Orbit, Disney Channel, Irdeto Access, Nagra,..),
Interactive games (Sony Computer Entertainment Europe, Electronic Arts, Activision,
) and publishing (Oxford University Press, Cambridge University Press,
Macmillan, Pearson Education, McGraw Hill,..). AE also manages program for brand
owners like Procter and Gamble , Apple , Energizer , Biersdorf , Louis Vuitton ,
Chrisitan Dior , Bvlgari , Nike , Pegler /Yorkshire , Sepplefricke , CME , Northern
Labs Inc (Formula 1 ) etc.
AE is British Virgin Islands (BVI) company, Managed by American National.

AE is an Anti-Piracy organization in the operating within GCC countries, representing rights
holders from various sectors. The core functions of AE, includes case management,
lobbying, training and PR. These functions have been identified to protect the intellectual
property rights of business & corporations, whose products have been pirated or
counterfeited creating a serious problem to their brand image and the market revenue of
their respective products.
AE also puts higher efforts in lobbying with the governments and authorities for
effective IPR regime in the respective countries. AE has established operations to
support the core functions of the company. Each country is managed by Command
Police Officers with previous enforcement experience and the company enjoys a good
working relationship with several government authorities and enforcement agencies.
AE has a comprehensive team of retired local Arab Police Officers with offices in
each of these countries all under a single umbrella organization. The Operation
53
Managers of each country have been nominated to their positions within AE by the
leadership of their respective countries and combined with their extensive network
that has been cultivated over the years, helps the authorities to facilitate effective
enforcement of the law. AE is very capable of lowering the incidence of all
counterfeit watches within UAE, Saudi Arabia, Kuwait and Bahrain by disrupting the
relevant supply chains and rendering unattractive to local trade the dealing in
counterfeit products.
Copyright:
Motion Picture Association (Disney, Sony Pictures, Twentieth Century Fox, Warner
Brothers, Universal, Paramount), and local distributors
Business Software
(Microsoft,..) Publishing (Cambridge University Press, Oxford University Press,
Macmillan,
McGraw
Hill,..)
Pay Television (Orbit-Showtime, E-vision, Disney Channel, Irdeto Access, Nagra,)
Interactive Games (Sony Play station, Microsoft Xbox, Electronic Arts, Activision,..)
On behalf of our members we have achieved the following actions.
Internet Actions: 1,001 sites/ servers blocked and 831 hosting takedowns
Movies (2001 present)
Raids: 2,246
Seizures: 27,204,230 CDs
Interactive Games (2001 present)
Raids: 718
Seizures:10,219,422
Pay Television (2001 present)
Raids: 887
Seizures: Affecting 114,939 homes
Trademark:
Procter and Gamble, Luxury Goods (Christian Dior, Louis Vuitton),Energizer, Nike,
BeiersdorfNivea) On behalf of our members we have achieved the following actions.
Trademarks (2001 present)
(P&G, Nike, Energizer)
Raids: 764
Seizures: 1,022,633 units
54
The program reinforced its vigilant actions with awareness campaigns to the
consumers through all media (television, newspapers and radio), liaising with the
authorities for stronger copyright and trademark enforcement (with the applicable
Governments and US Embassies), and conducting training seminars to promote
effective copyright and trademark enforcement. In summary the staff of the AE have
trained over 1,000 enforcement authorities on how to effectively enforce the
copyright law and have established excellent rapport with all levels of the
Government, international anti-piracy organizations and United States Government.
AE has established full time operations in UAE, Saudi Arabia, Kuwait and Bahrain.
Each country is managed by operational managers who have taken their cumulative
years of enforcement experiences against hard core crime (homicide, narcotics,
theft,..) within their respective countries and
are applying it to copyright and trademark infringements. The Operation Managers of
each country have been nominated to their positions within AE by the leadership of
their respective countries and combined with their extensive network that has been
cultivated over the years, facilitates effective enforcement of the law. AE has also
achieved the following key landmark achievements through our lobbying efforts.
Program dovetailed with Trademark and Copyright owners
Management of copyright and trademark infringement cases
Campaigning for effective enforcement
Training seminars
Public relations program
Internet Piracy
Internet piracy starts from the cam cording groups and release groups of optical disc
released movies till the end consumers of the pirated content. The easy availability of the
pirated movies on internet and the penetration of higher internet connection speeds pose
significant threat to the rights holders.
Threats and Tactics

Cam cording piracy in the region has been insignificant due to multiple factors like
theatre window period, censor certification, language, etc. Newly released movies on the
p2p network will be actively screened to perceive the origin from the region. In liaison
with the distributors, the source of the screening theatre will be determined and
arrangements will be made with theatres complexes to detect and discourage individuals
engaging in cam cording movies.
55
There has been significant impact of optical disc replicator units in the region, wherein
source movies are obtained through internet or couriers and mass produced in the
respective countries. Reducing the accessibility of internet files for the pirates, by
blocking identified sites, will discourage the replicating pirates to download the source
files from the internet.
Arabic based release groups have been found in the p2p network, who have released
dubbed and/or subtitled movies in the popular torrent release sites. The core of these
specific groups and users will be investigated and liaised with the respective authorities
for criminal cases against these pirates.
There are region-oriented sites which take the content available on the public domain and
present it in the local language to highly assist users to obtain the pirated content. The
proliferation of these type of sites have been higher in the region, due to language
preference and various type of pirated content made available in the form of forums. And
there are end-consumers who start downloading the pirated files in the public domain
(torrent sites, eDonkey, UGC, cyber lockers, etc.) and assist in sharing to other users as
well. Blocking the searching, indexing and tracker sites, would severely reduce access to
the pirated content for the consumers. Local sites with their owners based in the related
countries will be investigated and followed with criminal actions against these pirate sites.
Online sites based in the related countries facilitate delivery of pirated optical disc movies
to consumers. Investigations will be carried on the sites and followed up with criminal
cases against the pirates. The source of the optical disc and the soft files will be followed
up after criminal actions, to reduce the impact of creating similar sites.
Users occasionally post pirated optical disc on the popular auction sites. Agreements
have been secured with the online auction companies, to prohibit posting the illegal
auctions. Inspite of the sites efforts, some auctions which slip through the vetting of the
auction listings are immediately taken down upon notice to the auction companies.
The populations affinity to television programming has increased piracy for the pay tv
companies in the region. Servers which are the source of these kind of piracy, will be
identified. Servers based outside the countries will be blocked through cooperation with
the ISPs and authorities. Criminal actions will be instigated for servers based within the
countries and will be followed up to investigate on possible groups operating behind the
servers.
Regional Tactic
56
Memorandum of Agreements will be officially made with the TRA & MOE in UAE,
CITC and MOI in Saudi Arabia and National Library in Jordan. The MOA will allow the
regulatory bodies in coordination with the competent authorities to be actively involved in
combating internet piracy.
Trainings and forums will be continually organized to educate the authorities on the
evolving piracy schemes and to secure their support in combating advanced piracy issues.
Cyber Crimes unit within the Dubai police & Abudhabi police in UAE is already
established and KSA is formulating procedures to form Internet Crimes unit. AE will
ensure lobbying with the authorities in UAE and KSA to assign officers for internet
copyright crimes. Concerted actions between the regulatory bodies with respective ISPs,
ministries and police authorities will ensure combating piracy to the maximum effect.
Table 1.1a
AE Client Base
AE Client Base
< 1 year
1 - 2 Years
2 - 3 Years
> 3 years
57
1. Real Media/Zee/Ten sports

2. Modern Products
3. Procter & Gamble
4. Electronic Arts
5. E-vision
6. Microsoft
7. Microsoft Arabia (BSA)
8. Apple
9. Formula 1
10. Oxford University Press
11. Cambridge University Press
1. Rotana Audio/Video
2. Shooting Star
3. Nagra
4. Irdeto
1. ABB
2. Clipsal
3. Schneider
4. Christian Dior
5. Nike
6. Video Master
7. Sony
8. Walt Disney pictures
9. Twentieth Century Fox
10. Universal
11. Paramount Pictures
1. Energizer
2. Show time
3. Orbit
4. Pegler
5. Jumbo Electronics
12. Macmillan University press

13. BMW
Table 1.1 b
AEs Current Contracts

Current Contracts
1
Value
$
Rotana Audio/Video
58
182,940
2
Showtime
150,000
Orbit
150,000
Sony
147,000
Energizer
144,000
Nike
120,000
Microsoft
120,000
Video Master
108,576
Microsoft Arabia
96,000
10 Louis Vuitton
84,000
11 Pegler
72,000
12 Real Media/Zee TV
66,667
13 Modern Products
66,000
14 Procter & Gamble
54,000
15 Iredeto Access
50,000
16 Walt Disney
28,000
17 Christian Dior
22,000
18 Naigra
20,000
19 ABB
20,000
20 Clipsal
20,000
Schneider
59
21
20,000
22 Electronic Arts
10,000
23 E-vision
25,000
24 Jumbo Electronics
5,000
25 Apple
96,000
26 Oxford University Press
12,000
27 Cambridge University Press
12,000
28 Macmillan University Press
12,000
29 BMW
24,000
30 Formula 1
16,000
31 Cisco
24,000
32 All MPA Studios
150,000
Figure 4.1 a
60
Current Contract Top 10 contracts
61
Appendix 2
Financial Statements
Table 2.1 a
AE income statement
USD
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Audited
Audited
Audited
Projected
Projected
Projected
Projected
Projected
62
1,678,01
9
1,874,95
2
1,831,94
9
1,758,67
1
1,723,49
8
1,757,96
8
1,775,54
7
1,793,30
3
(910,95
9)
(1,088,646
)
(1,187,585
)
(1,118,070
)
(1,096,303
)
(1,125,523
)
(1,138,544
)
(1,134,964
)
767,06
0
786,30
6
644,36
4
640,60
1
627,19
5
632,44
5
637,00
3
658,33
9
27,67
9
2,70
4
4,18
9
(435,17
1)
(500,538
)
(500,160
)
(518,401
)
(498,810
)
(510,097
)
(508,845
)
(523,450
)
Resulting from
operating activities
359,56
8
288,47
2
148,39
3
122,20
0
128,38
5
122,34
8
128,15
8
134,88
9
Depreciation
(45,72
2)
(44,935
)
(67,023
)
(48,237
)
(44,238
)
(48,238
)
(48,238
)
(44,238
)
Finance Cost
(61,59
2)
(49,754
)
(40,140
)
(21,824
)
(9,993
)
(6,000
)
(6,000
)
(6,000
)
Net profit for the

period
252,25
4
193,78
3
41,23
0
52,13
9
74,15
4
68,11
0
73,92
0
84,65
1
Revenue
Operating expenses
Operating profit
Other income
Admin & general
expenses
Figure 4.2 b
63
AAA Income Statement

84,651
73,920
252,254
68,110
74,154
52,139
41,230
FY07
FY13
FY08
FY14
FY09
193,783
FY10
FY11
FY12
Table 2.1 b
AE balance sheet
64
USD
FY07
FY08
Audited
FY09
Audited
FY10
Audited
FY11
Projected
FY12
Projected
FY13
Projected
FY14
Projected
Projected
441,4
09
441,40
9
411,2
43
411,24
3
347,1
58
347,15
8
298,9
21
298,92
1
254,6
83
254,68
3
214,4
45
214,44
5
166,2
07
166,20
7
121,9
69
121,96
9
Total current assets
651,6
05
3,4
92
655,09
7
633,6
43
3,5
44
637,18
7
473,5
22
2,6
27
476,14
9
466,8
19
33,7
21
500,54
0
478,5
95
7,9
61
486,55
6
475,7
89
133,4
06
609,19
5
467,1
64
273,2
73
740,43
7
464,3
34
418,8
65
883,19
9
Total assets:
1,096,5
06
1,048,4
30
823,3
07
799,4
61
741,2
39
823,6
40
906,6
44
1,005,1
68
126,5
80
126,58
0
119,4
17
119,41
7
101,2
85
101,28
5
153,4
23
153,42
3
227,5
77
227,57
7
295,6
86
295,68
6
369,6
06
369,60
6
454,2
56
454,25
6
160,4
13
99,6
12
260,02
5
171,6
65
223,0
48
235,0
49
243,0
49
256,5
50
265,5
50
278,3
47
171,66
5
223,04
8
235,04
9
243,04
9
256,55
0
265,55
0
278,34
7
217,0
31
156,1
88
279,1
80
149,0
26
195,2
23
46,0
65
284,5
30
270,6
14
271,4
04
271,4
89
272,5
65
138,0
69
191,0
73
757,34
8
136,4
78
121,2
09
498,97
5
Total current
liabilities
124,7
71
211,9
11
709,90
1
41,5
93
84,8
66
410,98
9
270,61
4
271,40
4
271,48
9
272,56
5
Total liabilities
969,92
6
929,01
3
722,02
3
646,03
8
513,66
3
527,95
4
537,03
9
550,91
2
1,096,50
6
1,048,43
0
823,30
7
799,46
1
741,23
9
823,64
0
906,64
4
1,005,16
8
Assets
Property, plant
and equipment
Total non current

assets
Trade & other
receivable
Cash in hand and at
bank
Equity
Retained earning
Total retained
earning
Employee benefits
long term portion of
bank loan
Total non current

assets
Trade & other payable
Current portion of bank
loan
Subordinated loan from
shareholder
Bank overdraft (IB)
Bank overdraft (EBI
Total equity and

liabilities
Table 2.1 c
AE Cash Flow Statement
65
Statement of cash flows

USD
Cash Flow form Operation
activities
Net profit for the period
Adjustment for:
Depreciation
Finance cost
Operating profit before
working capital
Change in trade & other

receivables
Change in trade & other
payables
Change in due to related
party
Net movement in end of the
service benefits
Net cash from operating
activities
Cash flows from investing
activities
Purchase of property &
equipment
Net cash used for investing
activities
FY07
Audited
FY08
Audited
FY09
Audited
FY10
Projected
FY11
Projected
FY12
Projected
FY13
Projected
FY14
Projected
252,25
4
193,78
3
41,23
0
52,13
9
74,15
4
68,11
0
73,92
0
84,65
0
45,72
2
44,93
5
67,02
3
48,23
7
44,23
8
48,23
8
48,23
8
44,23
8
61,5
92
359,56
8
49,7
54
288,47
2
40,1
40
148,39
3
15,8
24
116,20
0
3,9
93
122,38
5
116,34
8
122,15
8
128,88
8
(188,501
)
33,89
1
(9,087
)
(13,772
)
17,96
2
62,14
9
160,12
1
(83,957
)
6,70
3
89,30
7
(11,77
6)
(13,91
6)
2,80
6
79
0
8,62
5
8
5
2,83
0
1,07
7
11,25
2
51,38
3
12,00
1
8,00
0
13,50
1
9,00
0
12,79
7
182,09
9
379,83
5
275,94
0
224,21
1
104,69
3
133,44
5
139,86
8
145,59
2
(9,29
6)
(9,29
6)
(14,76
9)
(14,769
)
(2,93
8)
(2,93
8)
(61,59
2)
(49,75
4)
(200,94
6)
(40,14
0)
(59,36
3)
(132,16
1)
13,2
98
(106,77
4)
(193,753
)
(20,950
)
(187,469
)
(208,419
)
3,492
211,911
(8,0
00)
(8,00
0)
(15,8
24)
(3,9
93)
(1,59
1)
(102,96
1)
41,5
93
(51,6
12)
(46,0
65)
(344,176
)
20,89
0
(208,419
)
(187,529
)
(204,055
)
68,94
7
(187,529
)
(118,582
)
(71,90
8)
152,30
3
(118,58
2)
33,72
1
(130,45
2)
(25,75
9)
33,72
1
7,96
1
125,44
5
7,96
1
133,40
6
139,86
8
133,40
6
273,27
3
145,59
2
273,27
3
418,86
5
3,544
191,073
2,627
121,209
33,721
-
7,961
-
133,406
-
273,273
-
418,865
-
(41,5
93)
(84,8
66)
Cash flows from financing

activities
Finance cost
Dividend paid to partner
Movement in subordinated
loan
Repayment of bank
overdraft
repayment of mortgage
Total non current assets

Net increase (decrease) in
cash and cash
Cash and cash equivalents at
1 jan
Cash and cash equivalents
at 31 dec
These comprise the
following
Cash in hand
Bank overdraft
66
Appendix 3
Scope, process and limiting conditions
Appendix 3 Scope, process and limiting conditions
Scope and process

67
Scope of work;
I have carried out an assessment of fair market value of the group as at 31 st December 2010.
work was carried out in connection with the possible of a 35% stake in the company by an
existing share holder.
In providing our fair market value opinion, we have adopted the discounted cash flow
(DCF) methodology described in detail later in this report. Implicit in the use of this
methodology in the assumption that the business is going concern. We have cross checked
the results of our analysis using market multiplies, in particular PE ratios.
Sources of information;
During the course of our work, I have relied on data and information made available to me
through different sources, including in detail prospective financial information (PFI)
obtained from management, sector specific obtained from the public domain and financial
and industry sources.
The principal sources of information provided by management included;
Consolidated audited statements from FY06 to FY09 for the company
Management projections for financial year FY10 to FY14.
Industry specific information and documentation
Based on the information set out in the preceding paragraphs, I undertook an analysis of
the financial projections including revenues, expenses, working capital and capital
expenditure. This involved a comparison with historical operating results, industry trends
and expectations.
Also undertook an analysis of other facts and data, including those specific to the company
68
and the industry in which it operates, which we considered pertinent to this valuation, to
arrive at the fair market value.
General limiting conditions;

The DCF methodology involved a review of the PFI prepared management, reflecting their
assessment of the most likely future outcome. I did not assist in the preparation of
managements PFI. Management has full responsibility for the judgments involved in, and
the results of PFI preparation process. Projection relate to future events and are based on
assumptions which may not remain valid for the whole of the relevant period. Consequently,
this information cannot be relied upon to the same extant as that derived form audited
accounts for the completed accounting periods. Although I have provided commentary on
the assumptions made by management. I express no opinion and provide on assurance as to
how closely the actual results will corresponded to those projected by management.
Consequently, I take no responsibility for the achievement of predicated results and disclaim
any liability relating to the achievability of the financial projections.
By its nature, valuation work is not exact science and the conclusions arrived at will of
necessity be subjective and dependent on the exercise of individual judgment. Whilst we
consider that the fair market value opinion provided is both reasonable and defensible,
based on the information made available to us, others may place a different value of the
group.
The actual price achieved in an open market transaction may ne higher or lower than the
low market value opinion depending upon the circumstances of the transaction (for example
the competitive bidding environment), the nature of the business (for example the
purchasers perception of potential synergies) the negotiating ability, the motivation of
buyers and sellers, etc. accordingly, the valuation of the company may not necessarily be the
69
price at which any agreement proceeds. The final price in something on which all parties
themselves have to agree. I have emphasize that the valuation is not only factor that should
be considered
by a buyer and seller in determining an agreeable price.
Specific limiting conditions;

I have not carried out a review of the contracts that the company has entered into with its
clients. While management has used its best estimates to determine projected revenue going
forward, the loss of key contracts or a significant reduction in the value of existing contracts
could have a consequential impact on the valuation of the company, especially since
management have assumed that these contracts are negotiated on a yearly basis. Conversely,
the signing of new contracts or an increase in the value of existing contracts could
potentially
impact the valuation as well.
The projections are denominated in US Dollar and no attempt has been made incorporate
the impact of nay exchange rate fluctuations between the US dollar and the currencies of the
various countries in which the clients of the Company are based because of the inherent
uncertainty in predicting moments. Any significant movements in the exchange rates could
have an impact on the valuation.
Equity value is a figure that, in theory, represents the entire cost of a company if someone
were to acquire it. Enterprise value is a more accurate estimate of takeover cost than market
capitalization because it takes includes a number of important factors such as preferred
stock, debt, and cash reserves that are excluded from the latter metric.
Enterprise value is calculated by adding a corporations market capitalization, preferred
stock, and outstanding debt together and then subtracting out the cash and cash equivalents
found on the balance sheet. (In other words, enterprise value is what it would cost you to
buy every single share of a companys common stock, preferred stock, and outstanding debt.
The reason the cash is subtracted is simple: once you have acquired complete ownership of
the company, the cash becomes yours). Lets examine each of these components
individually, as well as the reasons they are included in the calculation of enterprise value:
70
Market Capitalization: Frequently called market cap, market capitalization is

calculated by taking the number of outstanding shares of common stock multiplied by the
current price-per-share. If, for example, Billy Bobs Tire Company had 1 million shares of
stock outstanding and the current stock price was $50 per share, the companys market
capitalization would be $50 million (1 million shares x $50 per share = $50 million market
cap).
Preferred Stock: Although it is technically equity, preferred stock can actually act as either
equity or debt, depending upon the nature of the individual issue. A preferred issue that must
be redeemed at a certain date at a certain price is, for all intents and purposes, debt. In other
cases, preferred stock may have the right to receive a fixed dividend plus share in a portion
of the profits (this type is known as participating). Regardless, the existence represents a
claim on the business that must be factored into enterprise value.
Debt: Once youve acquired a business, youve also acquired its debt. If you purchased all
of the outstanding shares of a chain of ice cream stores for $10 million (the market
capitalization), yet the business had $5 million in debt, you would actually have expended
$15 million; $10 million may have come out of your pocket today, but you are now
responsible for repaying the $5 million debt out of the cash flow of the business cash flow
that otherwise could have gone to other things.
Cash and Cash Equivalents: Once youve purchased a business, you own the cash that is
sitting in the bank. After acquiring complete ownership, you can simply take this cash and
put it in your pocket, replacing some of the money you expended to buy the business. In
effect, it serves to reduce your acquisition price; for that reason, it is subtracted from the
other components when calculating enterprise value.
Why Is Enterprise Value Important?

Some investors, particularly those that follow a value philosophy, will look for companies
that are generating a lot of cash flow in relation to enterprise value. Businesses that tend to
fall into this category are more likely to require little additional reinvestment; instead, the
owners can take the profit out of the business and spend it or put it into other investments.
71
Appendix 4
Glossary
Appendix 5 Glossary
Table 3.1 a Term
Definition
72
USD
United States Dollars
AED
United Arab Emirates Dirham
Beta
CAGR
Compound annual growth rate
CAPM
Capital Asset pricing Model
CRP
Country risk premium
CSP
Company specific premium
DCF
Discounted cash flows
EBIT
Earning before interest and tax
EBITDA
Earning before interest, tax, depreciation

and amortization
EV
Equity value
FCFF
Free cash flows to the firm
Expected growth tare into perpetuity
MRP
Market risk premium
p.a.
Per Annum
PE
Price Earning multiple
PFI
Prospective financial information
Re
Return on Equity
Rf
Risk free rate
WACC
Weighted average cost of Capital
73
Recommendations & Conclusions
74

Buy: Means that the share under revision in this report is under priced and a valid up side
share price trend opportunity do exist and an investor (Long Term Investor) should buy the
share for dividends and / or price appreciation objectives. However, a buy recommendation
do not apply for an investor that is maintaining a position in the share prior to report
production date, he / she should hold or dispose of his / her position on their sole discretion.
Sell: Means that the share under revision in this report is overpriced and a valid down side
share price trend opportunity do exist and an investor (Long Term Investor) that holds a
position in the share reviewed in this report should sell the share to realize gains or stop
losses depending on his / her position. If the investor is not maintaining a position in this
share then he / she should avoid buying the share reviewed until the share rebounds to its fair
value.
Hold: Means that share maybe close or far from fair value depending on the scenario, there
are two scenarios in this case:
1. If the share is close to fair value: then an investor (Long Term Investor) holding no
position in the share should wait until price gets closer to fair value in order to buy the share.
If an investor is maintaining a position in the share then holding or disposing of the share is
on the investor's sole discretion.
2. If the share is far from fair value: Then an investor with no position should avoid buying
the share until it rebounds to fair value. If the investor maintains a position in the share then
he / she hold or dispose of the position on his / her sole discretion.
Key messages from today

1) Valuing investments remains difficult due to a lack of transactions and volatile
markets.
2) Valuation in 2008 was difficult this year will not be any easier.
3) The value of investments needs to be considered carefully given the rebound in equity
markets in 2009 but challenging trading conditions (i.e. earnings will be scrutinized.
Potential covenant breaches can impact fair value and need to be considered.
75
4) The Updated IPEVCG mean that the 12 month window for holding investments at
cost no longer holds, and, in addition, the marketability discount needs to be
considered in the multiple assessment.
5) Valuations should not change as a result of the Updated Guidelines but compliance
with IFRS and US GAAP needs to be carefully reviewed (we understand that the
USPE industry has asked for further clarification)
6) Investors are increasingly demanding in terms of regular and detailed information.
7) DCF remains a valuation technique that is rarely used in this industry (and that is
appropriate most of the time).
8) Decline in debt values do not automatically render equity worthless October 2009
Investors who are considering multiple investments or outlining an investment strategy may
request equity valuations of a company, to make the most informed investment decision.
Valuation methods based on the equity of a company typically include a thorough analysis
of cash accounts, as well as a forecast or projection of future dividends, future earnings
(revenue) and the distribution of dividends.
Determining the total value of a company involves more than reviewing assets and revenue
figures. An equity valuation takes several financial indicators into account these include
both tangible and intangible assets and provide prospective investors, creditors or
shareholders with an accurate perspective of the true value of a company at any given time
A thorough analysis of tangible and intangible assets allows prospective investors,
shareholders and financial managers of a company to obtain critical performance data about
the company's business operations. The equity valuation method takes several types of data
into account, and can be used as part of a prediction model to determine the economic future
of the company. The valuation also provides some indication of the level of risk involved in
investing in the company.
In our view, there is likely to be vigorous debate within private equity firms and with
external parties around both the multiple and the maintainable earnings for the valuation of
investments for 2010 year-ends.
However, the need to arrive at a best estimate of Fair value remains the core principle and,
in many ways, the Updated Guidelines facilitate this by their increased focus on multiples
which is consistent with how the industry generally considers values when making original
investments.
76
Finally, it will be important for private equity firms (and their auditors) to ensure that any
changes in values from 2009 have been assessed in the context of earnings performance,
future prospects and recovery in market prices to arrive at robust valuations. Firms will
continue to rely heavily on proper process and evidencing given the increasing level of
scrutiny in this industry.
Summary of Conclusion
The research questions posed at the outset of this article were which equity valuation
methods are preferred in academia, and whether the general belief regarding the gap
between these preferences and the equity valuation methods that are applied in practice, is
warranted. To this end, current academic thinking on primary equity valuation methods was
compared with the current practice of corporate valuation policy. The research results
should be considered with caution. The research was based on the beliefs and opinions of
chartered accountants, which constitutes a specific target audience in the broader academic
environment. Some members of the academic community, who lecture valuations, are not
chartered accountants. One could therefore argue that the application of this study was
narrowly defined in terms of focusing specifically on chartered accountants, which may
have obscured the generalization of the results. However, this should not detract from the
importance of valuations as a key focus area in the SAICA syllabus in particular, and in
most other finance syllabi. As such, the research results contribute to the continued
development of the academic environment responsible for the future training of chartered
accountants. Although not considered in this study, the broader academic environment may
have similar concerns about valuations, which the author intends investigating in further
research. The results are both reassuring and surprising. It is reassuring to know that the
DCF approach, multiples and the NAV method are equally popular among academia and
investment practitioners.
Appendix 4 Recommendations & Conclusions
Academia, and research in particular, should guide practice and aid investment practitioners
when valuing the equity of companies. The top three minority and majority equity valuation
methods favored by academia are DCF methods. The DCF approach should always be
considered as the method of choice when valuing the equity of a going concern. This is well
supported by research, which has established the superiority of the DCF approach. Although
particular DCF methods were not specified in the PwC survey, academia indicated a strong
preference for the FCF model as a majority valuation method, while the DGM was the only
minority valuation method that garnered support from the majority of academia. In terms of
specific applications in the DCF approach, academia prefer the DGM as the method of
77
choice for valuing a minority interest. However, in the authors opinion, the DGM is not the
most suitable valuation method for valuing a minority interest. If the information is
available, the method of choice should be the FCF method. The author does concede,
however, that the DGM is a far superior method to the DYM, which, in the authors opinion,
is a poor valuation method and should be avoided. In a perfect world, one may be tempted
to argue that valuation methods other than the DCF approach should be regarded as
secondary valuation methods. However, there are occasions when the availability of
information may be limited, which may render a DCF
approach inapplicable. In such instances, valuation methods such as multiples may be used
as primary valuation methods. The level of academic support in favour of valuation methods
such as the EYM and the
EBITDA cash flow model was somewhat surprising. The EYM and the EBITDA cash flow
models discount earnings to derive an equity value, a practice which is conceptually flawed.
Also surprising was investment practitioners total disregard for the use of the EVA model.
Despite the fact that academia indicated a significant preference for the use of the EVA
model, and the confirmation of its accuracy as a valuation instrument by research,
investment practitioners indicated that they never use the EVA model.
In our view, there is likely to be vigorous debate within private equity firms and with
external parties around both the multiple and the maintainable earnings for the valuation of
investments for 2009 year-ends. However, the need to arrive at a best estimate of Fair value
remains the core principle and, in many ways, the Updated Guidelines facilitate this by their
increased focus on multiples which is consistent with how the industry generally considers
values when making original investments. Finally, it will be important for private equity
firms (and their auditors) to ensure that any changes in values from 2008 have been assessed
in the context of earnings performance, future prospects and recovery in market prices to
arrive at robust valuations. Firms will continue to rely heavily on proper process and
evidencing given the increasing level of scrutiny in this industry.
78
REFERENCES AND BIBLIOGRAPHY

Pricewaterhouse cooper equity valuation ; http://books.google.ae/books
Corporate Finance, A Valuation Approach by Simon Z. Benninga and Oded H.
Sarig,International edition, McGraw. Hill Company
PwC, on private equity and fair value
Equity Asset Valuation: Valuation Book- John D Stowe, Thomas R Robinson,
Jerald E
The small business valuation book By Lawrence W. Tuller
Internet
www.google.com
********************
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CERTIFICATE

Name and Address of the Student:

Title of the Project

EQUITY VALUATION OF ANGLO EASTERN (AE or

Name and Address of the Guide :

with reference to the state of

Mr. V. Krishna Gopal___________________________

For Office Use only

Comments / Suggestions for reformulating the Project

United Arab Emirates

Summary of valuation range

Discount rate calculations

PE multiple value (Xs)

Free cash flow over projection period

The fair market value

Summary of profitability Income data

Results and assumptions Income statement

Results and assumptions Operating expenses

Results and assumptions A&G expenses

Results and assumptions Working capital Analysis

Cash flow statement

Base case valuation Bridge

Free cash flow projection

FY08 Revenue break-up

Clients base value

Salary & benefits

Admin & General Expense

Current contract Top 10

3. Summary of valuation range

5. Discounted rate calculation

6. Sensitivity analysis- non marketable, minority Interest

Section 2 Valuation Working

9. The Fair market value

Section 3 Managements Projections

11. Adjustment to the audited financial statements

12.Financial results and assumptions-Income Statement

13.Financial results and assumptions-Operating Expenses

14.Financial results and assumptions-A&G Expenses

15.Financial results and assumptions-Working capital analysis

Appendix 1 Company Overview

4. AE Achievements Internet Piracy

6. AEs Current Contracts

Appendix 2 Financial Statements

10.Cash Flow statement

Appendix 3 Scope, Process and Limiting Conditions

13.General limiting conditions

14.Specific limiting conditions

Recommendations & conclusions

Reference and Bibliography

Section 1 Valuation Summary

Before You Sell/Buy your Company, Conduct a Business Valuation

Discounted Cash Flow

Section 1 Valuation Summary

discount of 20% was applied to the valuation of AE. The

marketability discount to typically applied to the valuation of a privately held entity

Section 1 Valuation Summary

An earnings-based approach estimates a sustainable level of annual earnings for a

In considering the maintainable earnings of the business being valued, factors to be

Free Cash Flow over the Projection period;

Option value of equity

Section 1 Valuation Summary

Summary of Valuation Range

Non- operating assets

(Current market value