3 ) Tasks and duties during my internship (2)
I participated in all the valuation steps of the client Companies. The company belongs to a network of 11 locations in the United States. It is a very well organized Company, and by there a very performing Company. The different positions are Analysts (5 persons), Associates (2 persons), Manager (1 person) and Managing Director (1 person). Team work is very important and communication is encouraged.
The valuation calculation in that company goes through the following process:
- Filling of the templates of balance sheet and income statement, especially separation of depreciation and interests, organization in EBITDA, EBIT, EBT, net income and cash flow
- Checking of the numbers by another analyst
- Calculation of the ratios
current ratio = current assets / current liabilities
quick ratio = (current assets – inventories) / current liabilities
inventory turnover = cost of goods sold / inventories / 2
operating income return on investment = operating income / total assets
operating profit margin = operating income / sales
total assets turnover = sales / total assets
debt ratio = total debt / total assets
return on equity = net income / common equity
return on total assets = net income / total assets
- Due diligence questions : meeting with the client to get an intimate knowledge of the Company’s history, sales cycle, market, customers, suppliers.
- Companies guideline and market approach : search of similar public companies which must be actively traded (stock over $5) in proprietary database and public websites. Their SEC filings are filled in the mainmodel, and a discount rate is used to compare the companies (stage of the company, market, organization).
- Discounted Cash Flows : DCF are calculated on the financial projections of the Company.
- A weighted average is made with the 3 valuation methods to obtain the fair market value of the Company.
- Economy and Industry outlook : an analysis of the US and Californian Economy is added to the report as well as the concerned industry forecast. (new analysts start here).
(Appendix at Oral Presentation)
b) Anglo-Saxon accountancy
COGS = Cost Of Goods Sold
EBITDA = Earnings Before Interests, Taxes, Depreciation and Amortization
EBIT = Earnings Before Interests and Taxes (= operating income)
EBT = Earnings Before Taxes
LTM : Latest Twelve Months
FYE : Fiscal Year End
Cost of sales: take only into account cost of operations and cost of services (no selling and administrative and no amortization)
The shares can be: common (class A and B)
There is a number of shares for: authorized
Book value = total assets - total liabilities (= owner's equity of the balance sheet ? )
Operating distribution = net income + distribution
Net sales = total revenues
Cash Flow = net income + depreciation
Earnings = income
Equity = capital
Working Capital = revenues / (currents assets – current liabilities)
Book value = property and equipment
Net Worth = Total Shareholders Equity
NAV (Net Assets Value) = Total Assets – Liabilities (= Shareholders Equity)
Capital Expenditures = purchase of fixed assets
Debt + Market Capitalization = TIC (Total Invested Capital)
Depreciation = for an asset that lasts several years
Amortization = for intangible assets
Interest bearing debt (= amount of capital) include:
Capital lease obligation
Current portion of capital lease obligation
Current portion of note payable
SEC Filings :
10K = annual report
10Q = quarterly report
Cash Flow Statement
It is very important to be cautious about the document that you take into account : always before the valuation date (not the filling date but the period of reference), 10K for the FYE, 10Q for the LTM.
If 10K is not available, take 10KSB, or the temporary documents such as 424B