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Posted: October 13th, 2022
Post About Equity Valuation: Concepts and Basic Tools
From this list of companies to research, choose the three which you find most interesting, then address items A-J (below) in your discussion. For reference in the instructions, consider your three firms to be Company I, Company II and Company III respectively.
For Company I, list ten firms which you consider “comparable” to Company I. Create a single table of these ten firms showing the Trailing P/E, Price/Sales, Price/Book and Enterprise Value/EBITDA ratio for each (You can find ratios like these easily using public information sources like Yahoo Finance. For an illustrated example, click on this link: Yahoo finance has useful ratios…).
Assess the value of Company I using these criteria:
What is the average and median Trailing P/E for the ten firms you chose as comparable to Company I? What do these suggest about the value of Company I?
What is the average and median Price/Sales ratio for the ten firms you chose as comparable to Company I? What do these suggest about the value of Company I?
What is the average and median Price/Book for the ten firms you chose as comparable to Company I? What do these suggest about the value of Company I?
What is the average and median Enterprise Value/EBITDA for the ten firms you chose as comparable to Company I? What do these suggest about the value of Company I?
For Company II, list ten firms which you consider “comparable” to Company II. Create a single table of these ten firms showing the Trailing P/E, Price/Sales, Price/Book and Enterprise Value/EBITDA ratio for each.
Assess the value of Company II using these criteria:
What is the average and median Trailing P/E for the ten firms you chose as comparable to Company II? What do these suggest about the value of Company II?
What is the average and median Price/Sales ratio for the ten firms you chose as comparable to Company II? What do these suggest about the value of Company II?
What is the average and median Price/Book for the ten firms you chose as comparable to Company II? What do these suggest about the value of Company II?
What is the average and median Enterprise Value/EBITDA for the ten firms you chose as comparable to Company II? What do these suggest about the value of Company II?
For Company III, list ten firms which you consider “comparable” to Company III. Create a single table of these ten firms showing the Trailing P/E, Price/Sales, Price/Book and Enterprise Value/EBITDA ratio for each.
Assess the value of Company III using these criteria:
What is the average and median Trailing P/E for the ten firms you chose as comparable to Company III? What do these suggest about the value of Company III?
What is the average and median Price/Sales ratio for the ten firms you chose as comparable to Company III? What do these suggest about the value of Company III?
What is the average and median Price/Book for the ten firms you chose as comparable to Company III? What do these suggest about the value of Company III?
What is the average and median Enterprise Value/EBITDA for the ten firms you chose as comparable to Company III? What do these suggest about the value of Company III?
Explain the limitations, problems and shortcomings of using multiples in developing an objective valuation. Be specific and use examples from your work on Company I, Company II and Company III.
Examine the Statements of Cash Flows for Company I for the past five years. Explain in detail the dividends, stock repurchases, and other payouts made to equity holders during that five-year period. If there were stock repurchases, what reasons did management give for the repurchase? What specific changes in retained earnings do you see on the balance sheets for those same five years, and how did those payouts specifically affect the retained earnings balances during that time? Explain and describe the per-share dividend history of Company I for the past five years. Explain the limitations, problems and shortcomings of using dividends in developing an objective valuation of Company I.
Examine the Statements of Cash Flows for Company II for the past five years. Explain in detail the dividends, stock repurchases, and other payouts made to equity holders during that five-year period. If there were stock repurchases, what reasons did management give for the repurchase? What specific changes in retained earnings do you see on the balance sheets for those same five years, and how did those payouts specifically affect the retained earnings balances during that time? Explain and describe the per-share dividend history of Company II for the past five years. Explain the limitations, problems and shortcomings of using dividends in developing an objective valuation of Company II.
Examine the Statements of Cash Flows for Company III for the past five years. Explain in detail the dividends, stock repurchases, and other payouts made to equity holders during that five-year period. If there were stock repurchases, what reasons did management give for the repurchase? What specific changes in retained earnings do you see on the balance sheets for those same five years, and how did those payouts specifically affect the retained earnings balances during that time? Explain and describe the per-share dividend history of Company III for the past five years. Explain the limitations, problems and shortcomings of using dividends in developing an objective valuation of Company III.
These are the companies we are focusing on this term:
Target Corporation (TGT) – Retailer
Dollar General Corp. (DG) – Retailer
GameStop Corp. (GME) – Retailer
AMC Entertainment Holdings Inc. (AMC) – Service Provider
Darden Restaurants, Inc. (DRI) – Service Provider
Planet Fitness Inc. (PLNT) – Service Provider
Alphabet Inc. (GOOGL) – Service Provider
PepsiCo, Inc. (PEP) – Manufacturer
International Paper Company (IP) – Manufacturer
3M Company (MMM) – Manufacturer
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