CareerIn 19-Week Investment Banking Workshop

Valuation
Valuation

How to Calculate Beta

What are trading multiples and how are they different from each other?
What makes a good comparable company for valuation purposes?

Ace real valuation interview questions: general and DCF

Ace real valuation interview questions: comps

Enterprise value 1
Using the information below, calculate Kastali Inc’s enterprise value.

Share price 20.00

Numbers of shares outstanding 100.0
Average number of shares outstanding 90.0
Short term debt 50.0
Long term debt 500.0
Cash 50.0

Enterprise value 2
Using Mix-Up’s information below, calculate the company’s enterprise value.

Preference / preferred shares value 300.0

Long term debt 800.0
Finance / capital leases 56.0
Short term debt 67.0
Share price 3.00
Cash 45.0
Short term investments 12.0
Number of shares outstanding 300.0

Enterprise value 3
Using Mazzarati Motor’s information below, calculate the company’s enterprise value
and total enterprise value.

Short term debt 1,200.0

Long term debt 6,500.0
Non-controlling interest 500.0
Non-core assets 800.0
Cash and equivalents 480.0
Share price 4.80
Number of shares outstanding 500.0

Multiples
Using the information below, calculate the PE, EBIT and EBITDA multiples.

Share price 9.75

Number of shares outstanding 4,568.0
Preferred stock value 2,400.0
Short term debt 8,900.0
Long term debt 22,000.0
Cash 4,500.0
Operating profit 4,556.0
Depreciation 580.0
Amortization 168.0
Diluted earnings per share 0.44

DCF
Calculate the share price for Liner Inc from the forecast cash flows below. The
discount rate is 9%. You also know that the value of the debt of Liner Inc is 120,332,
while cash and investments are 34,776 and 24,800, respectively. Assume the company
has 46,785 shares outstanding.

Year 1 proj. Year 2 proj. Year 3 proj. Year 4 proj. Year 5 proj.
Free cash
42,671 45,230 47,266 51,047 55,131
flows
Terminal value 413,483

Comparable Analysis
Calculate the implied share price for Salmon using the following information
regarding Tuna, a comparable company.
Tuna Salmon
EBITDA 125.0 100.0
Share price 7.00
Debt 460.0 100.0
Preference shares 50.0 0.0
Cash 85.0 111.0
Number of outstanding 100.0 250.0
shares
Normalized Net Income
Calculate the normalized net income for Merck given the following income statement
and related footnote extracts. Assume “Other (income) expense, net” is recurring.

Reported Adjustments Normalized

Sales 22,011.9
Costs, expenses and other
Materials and production 5,149.6
Marketing and administrative 7,155.5
Research and development 3,848.0
Restructuring costs 322.2
Equity income from affiliates (1,717.1)
Other (income) expense, net (110.2)
Total costs, expenses and other 14,648.0
Income from continuing operations before 7,363.9
taxes
Taxes on income 1,966.1
Income from continuing operations 5,397.8
Income from discontinued operations, net 0.0
of tax
Net income 5,397.8

Note 5 Restructuring (extract)

The pre-tax cost of the restructuring program was $621.1m in Year 1. The
restructuring program included $195.8m of accelerated depreciation and asset
impairment costs, of which $177.1m was recorded to materials and production and
$18.7m was recorded to research and development. The company also plans to close
its basic research center in Terlings Park, United Kingdom, and incurred additional
accelerated depreciation costs of $103.1m recorded to research and development in
Year 1, which reduced the assets of this research center down to net realizable values.

Note 17 Taxes on Income (extract)

A reconciliation of the company’s effective tax rate and the U.S. statutory tax rate is
as follows:
Amount Rate
U.S. statutory rate applied 2,577.4 35.0%
to income from continuing
operations before taxes
Differences arising from:
Foreign earnings (945.1) (12.8%)
Tax exemption for Puerto (98.0) (1.3%)
Rico operations
State taxes 188.6 2.5%
Other 243.2 3.3%
1,966.1 26.7%

Calendarized financial measures

You have been asked to calculate calendarized revenues, EBITDA and net income to
Sept 30th Year 2 and Year 3 for NWF.

You have extracted the historic and forecast data from a broker report. Calculate the
appropriate calendarized financial measures for the trailing and forward multiples in
the table below.

Calendarized
Published Forecast Forecast Year to Year to
financials
Dec 31th Yr 1 Dec 31th Yr 2 Dec 31th Yr 3 Sep 30th Yr 2 Sep 30th Yr 3
Revenue 5,304.0 5,604.0 5,808.0
EBITDA 1,000.0 1,100.0 1,200.0
Net income 520.0 580.0 650.0