7 steps in valuing your company
TRANSCRIPT
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TM
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∑ (FCF/(1+Wacc)^n)+(FCF/(Wacc-g)/(1+Wacc)^n)-Debt
You do not always have enough time to run a full blown company
valuation.
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1+2+3 = 6
On the occasions that you are in a hurry, you may take a quick EVA
approach.
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Using free web app at
apps.mygide.uk:8123/eva
building it in the following easy seven steps in your spreadsheet.
or
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1.Analyze normalized EBIT – Earnings
before interest and tax that the company can sustainably generate.
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2.Take the company’s book value of equity and add interest bearing bank debt to get capital employed (or book value of company). You may adjust it by adding other operating assets and subtracting
non-operating items.
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3.Calculate WACC– weighted average
cost of capital or how much the capital employed costs – take cost of equity
(expected return on equity) add cost of debt (interest rate), both weighted by its respective share in the capital employed
prior to the addition.
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4.
Calculate ROCE – return on capital employed, which is a division of EBIT
over the capital employed.
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5.
Subtract WACC from ROCE and multiply the result by capital employed to arrive
to EVA – economic value added.
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6.
Divide EVA by WACC and add the result to capital employed to get indicative
company value.
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7.
Subtract the interest bearing debt to arrive at indicative value of equity.
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Indicative value of the company equity is to its book value
equal when ROCE equals WACC or simply said when
EBIT equals cost of capital
higher when the difference between ROCE and
WACC is positive
lower when the difference between ROCE and WACC
is negative.
1.2.3.
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A quick EVA assessment of indicative value is very
helpful during brainstorming and ‘what next’ types of
meetings.
For an online tool to calculate EVA visit:
apps.mygide.uk:8123/eva