Using the methodologies learned in class, conduct a relative valuation of your company using the following multiples: Price to Earnings (P/E) Price to B

09 Apr Using the methodologies learned in class, conduct a relative valuation of your company using the following multiples: Price to Earnings (P/E) Price to B

Posted at 06:33h in Uncategorized by

Using the methodologies learned in class, conduct a relative valuation of your company using the following multiples:

Price to Earnings (P/E)
Price to Book (P/B)
Price to Sales (P/S)
Enterprise Value to EBITDA (EV/EBITDA)
Any other method deemed appropriate for your company

In your valuation discussion, explain how you determined the appropriate value of the multiple. Include historical charts to reinforce your arguments and provide context.

Evaluate which of these multiples are suitable for your company. Justify your selection. Consider factors such as industry norms, company-specific characteristics, and growth prospects when making your determination.

Submit a detailed report through Brightspace, ensuring clarity in presentation and thoroughness in analysis.

My Instructions
I have attached the presentation of professor and also attaching my Pro-forma statements analysis from which you can take a reference. I just need the excel work for this relative valuation. I can write a report from that.

RELATIVE VALUATION

FI 640

Dr. Alok Nemani

RELATIVE VALUATION

▪ In relative valuation, the value of an asset is compared to the

values assessed by the market for similar assets.

▪ Can’t catch market trends. Assumes market is on average

efficient.

CONDUCTING RELATIVE VALUATION

▪ Identify similar assets and obtain market values for these

assets.

▪ Convert these market values into standardized values or

multiples, since the absolute prices cannot be compared.

▪ Multiples for both the assets should be estimated in a

consistent manner (such as accounting rules, periods, ratio

definition etc.)

▪ Compare the multiple for the asset being analyzed to the

multiple for the comparable asset, controlling for any

differences between the firms that might affect the multiple

(example: size, growth rate, profitability etc.).

FINDING THE RIGHT MULTIPLE

➢What is the right value of a multiple?

I. Compare the current multiple of the company to its

own historical multiple.

▪ Measured at a comparable point in the business cycle

and macroeconomic environment

II. Compare current multiples to those of other

companies, a sector or a market.

▪ Adjust the multiple for differences in growth, profitability,

lifecycle, dividends, risk profile etc.

▪ Compare the current spread between them to a historical

spread.

PE RATIO

▪ Price-to-earnings (PE ratio): stock price divided by EPS

❑ Price: usually the current stock price

❑ EPS is earnings per share

❑ EPS can be of different types.

• Most recent EPS

• Trailing PE: last 12-month EPS

• Forward PE: next 12-month EPS

PE RATIO

▪ All else equal, high PE ratio firms are overvalued compared to low

PE stocks. But,

▪ All else is seldom equal.

❑ Firms with high growth, high ROE, low risk (stable earnings), high

dividends typically command high PE ratio.

❑ Determine expected PE ratio using comparable asset and multiply it by

correct EPS to get expected intrinsic value.

▪ Getting the right PE ratio:

❑ Examine past (3-5 year) ratios : Highest PE ratio may be used for best

case, average for base case, lowest for worst case. Assign probability

based on market condition i.e., GDP growth, inflation, interest rates.

❑ Adjust for historic spreads

❑ Regress firm’s PE ratio on industry or competitor PE ratio to predict the

PE ratio.

PEG RATIO

▪ PE ratio is higher for high growth firms.

▪ To reconcile high P/E valuation for high growth firms, the

PEG ratio was developed.

▪ It is the ratio of price multiple to the EPS growth rate.

▪ 𝑃𝐸𝐺 = ൗ𝑃/𝐸 𝑔, g is expected earnings growth rate

▪ Allows identification of overvalued stocks by adjusting for

growth.

IS PEG SUPERIOR TO P/E?

▪ PEG is more appropriate for high growth firms.

▪ P/E is more appropriate for stable companies.

▪ The main issue is the quality of the growth estimate.

▪ We know that analysts have consistently over-estimated

EPS growth.

▪ PEG is not better or worse than P/E. It is just a different

valuation measure.

EV-TO-EBITDA RATIO

▪ Economic value to EBITDA

▪ EV (economic value) = market value of equity + market value of

debt (take book value of market value not available) – cash.

▪ EBITDA: earnings before interest, taxes, and depreciation

▪ Intuition is similar to PE. Firms with high growth, high ROE, low

risk (stable earnings) typically command high multiple.

▪ Firms with high debt (not distressed) commands higher multiple

due to low cost of capital.

▪ EV/EBITDA analysis provides firm value.

▪ EV/EBITDA is preferred for capital intensive and high leverage

businesses.

PRICE-TO-BOOK RATIO

▪ Price/Book Value = Market Value of Equity / Book Value of Equity

❑ Market value of equity = share price * # shares outstanding

❑ Book value of equity = shareholders’ equity in the balance sheet

▪ High ROE firms typically trade at a higher multiple.

▪ Good for capital intensive businesses.

❑ Examples: Energy companies, Financial services and banks, Transportation companies, manufacturing companies.

▪ Can be used for cyclical businesses.

▪ Should not be used for firms with volatile capital structure or firms with negative equity.

PRICE-TO-SALES RATIO

❑ Price/ Sales= Market Value of Equity/Total Revenues

❑ Price = PS ratio * sales

❑ Sales are generally less subject to distortion or manipulation

than EPS or book value.

❑ Sales are positive when EPS is negative.

❑ Because sales are more stable than EPS, PS is generally more

stable than PE.

❑ PS is appropriate for valuing the equities of growth companies

yet to turn profitable, firms with temporary setback and when

sales is the most important metric.

❑ Since it does not account for capex or debt, should be used for

companies for which debt ratios or capex is stable.

CHOOSING THE RIGHT METHODOLOGY

▪ How to determine the right value given there are numerous

multiples?

▪ First approach:

❑ Use simple average of stock price calculated using different multiples.

❑ Use weighted average of stock price calculated using different multiples.

▪ A better approach:

❑ Determine the right multiple for your company and use it for valuation.

❑ Right multiple depends on business dynamics (industry), value drivers

CHOOSING MULTIPLES

4-13

Sector Right Multiple

Cyclical

Manufacturing – for stable & low leverage

Manufacturing – for high leverage

High Tech, Normal growth

High Tech, High growth

Heavy Infrastructure

Financial services

Retail – for stable & low leverage

Retail – for high leverage

CHOOSING MULTIPLES

4-14

Sector Right Multiple

Cyclical PB

Manufacturing – for stable & low leverage PE, PB, EV/EBITDA

Manufacturing – for high leverage EV/EBITDA, PB

High Tech, Normal growth PE

High Tech, High growth PEG

Heavy Infrastructure EV/EBITDA, PB

Financial services Price to Book

Retail – for stable & low leverage PE, PS

Retail – for high leverage EV to sales

NICE THOUGHTS

▪ The P/E ratio is only a reflection of what most investors expect to

happen at a point in time, and that is neither here nor there in terms

of what actually will happen.” Peter Bernstein

▪ “Just because something is cheap does not mean it is not going to

go down.” Warren Buffett

▪ “There is nothing at all conservative, in my opinion, about

speculating as to just how high a multiplier a greedy and capricious

public will put on earnings.” Warren Buffett

THANK YOU

Slide 1: Relative valuation
Slide 2: Relative valuation
Slide 3: Conducting Relative valuation
Slide 4: Finding the right multiple
Slide 5: PE ratio
Slide 6: PE ratio
Slide 7: PEG ratio
Slide 8: IS PEG Superior to P/E?
Slide 9: EV-to-EBITDA ratio
Slide 10: Price-to-book ratio
Slide 11: Price-to-sales ratio
Slide 12: Choosing the right methodology
Slide 13: Choosing Multiples
Slide 14: Choosing Multiples
Slide 15: Nice thoughts
Slide 16

Daily

	S&P		Risk Free Rate			Oracle
Date	Price	%Return	YTM	Daily	Market Risk Premium	Price	%Return							observation_date	DGS10	Date	Price
03/18/25	5,614.66	-1.07%	4.31	0.0118%	-1.08%	149.45	-2.96%							2024-03-14	4.29	03/18/25	149.45
03/17/25	5,675.12	0.64%	4.31	0.0118%	0.63%	154.01	3.18%							2024-03-15	4.31	03/17/25	154.01
03/14/25	5,638.94	2.13%	4.31	0.0118%	2.11%	149.27	1.09%							2024-03-18	4.34	03/14/25	149.27
03/13/25	5,521.52	-1.39%	4.27	0.0117%	-1.40%	147.66	-2.14%							2024-03-19	4.30	03/13/25	147.66
03/12/25	5,599.30	0.49%	4.32	0.0118%	0.48%	150.89	4.65%							2024-03-20	4.27	03/12/25	150.89
03/11/25	5,572.07	-0.76%	4.28	0.0117%	-0.77%	144.18	-3.10%	SUMMARY OUTPUT						2024-03-21	4.27	03/11/25	144.18
03/10/25	5,614.56	-2.70%	4.22	0.0116%	-2.71%	148.79	-4.11%							2024-03-22	4.22	03/10/25	148.79
03/07/25	5,770.20	0.55%	4.32	0.0118%	0.54%	155.16	2.80%	Regression Statistics						2024-03-25	4.25	03/07/25	155.16
03/06/25	5,738.52	-1.78%	4.29	0.0118%	-1.79%	150.94	-6.57%	Multiple R	0.5822825511					2024-03-26	4.24	03/06/25	150.94
03/05/25	5,842.63	1.12%	4.28	0.0117%	1.10%	161.56	2.60%	R Square	0.3390529693					2024-03-27	4.20	03/05/25	161.56
03/04/25	5,778.15	-1.22%	4.22	0.0116%	-1.24%	157.47	-2.81%	Adjusted R Square	0.3363878603					2024-03-28	4.20	03/04/25	157.47
03/03/25	5,849.72	-1.76%	4.16	0.0114%	-1.77%	162.02	-2.43%	Standard Error	0.0194532488					2024-03-29		03/03/25	162.02
02/28/25	5,954.50	1.59%	4.24	0.0116%	1.57%	166.06	0.79%	Observations	250					2024-04-01	4.33	02/28/25	166.06
02/27/25	5,861.57	-1.59%	4.29	0.0118%	-1.60%	164.76	-4.47%							2024-04-02	4.36	02/27/25	164.76
02/26/25	5,956.06	0.01%	4.25	0.0116%	0.00%	172.47	2.33%	ANOVA						2024-04-03	4.36	02/26/25	172.47
02/25/25	5,955.25	-0.47%	4.3	0.0118%	-0.48%	168.54	-0.84%		df	SS	MS	F	Significance F	2024-04-04	4.31	02/25/25	168.54
02/24/25	5,983.25	-0.50%	4.4	0.0121%	-0.51%	169.96	1.28%	Regression	1	0.0481434112	0.0481434112	127.2191756549	4.32996687533767E-24	2024-04-05	4.39	02/24/25	169.96
02/21/25	6,013.13	-1.71%	4.42	0.0121%	-1.72%	167.81	-4.65%	Residual	248	0.0938503643	0.0003784289			2024-04-08	4.42	02/21/25	167.81
02/20/25	6,117.52	-0.43%	4.5	0.0123%	-0.45%	176.00	-3.04%	Total	249	0.1419937756			< Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline. Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax. Do you need an answer to this or any other questions? About Wridemy We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers. How It Works To make an Order you only need to click on “Place Order” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline. Are there Discounts? All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure. Hire a tutor today CLICK HERE to make your first order Wridemy Address, Albany New York, 12205, +1 (516) 262-4518 info@wridemy.com Level 6/140 Creek Street, Brisbane, QLD 4000, Australia +61-283-206-023 Study Help Recent Questions and Answers Assignment Solutions Textbook Solutions Become an Affiliate About Us Tutor Registration Blog Contact Us Careers Copyright ©solutions.wridemy.com Privacy Policy \| Revision Policy

Study Help

About Us

09 Apr Using the methodologies learned in class, conduct a relative valuation of your company using the following multiples: Price to Earnings (P/E) Price to B

Daily

About Wridemy

We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.

How It Works

Are there Discounts?

Hire a tutor today CLICK HERE to make your first order

Wridemy