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Apex Fixup Inc.
Business Valuation Report
VIM
2/21/18
VIM
Purpose of Report
The Valuation “calculation report” is intended to provide an approximate “fair market value” of a business
using technology based on actual comparable transactions. We provide a highly comprehensive service where
each system is transparent and tested for positivity. We provide a system where a highly active database is used
to find out past comparable data and calculate current data.
Scope and Intended Use of the Report
This is considered a calculation report, which is intended to provide an approximate indication of value based
upon the performance of limited procedures. The scope is limited in that many factors affect the ultimate value
of a business such as the international economy, may not have been reviewed as compared to the local
economy and its implications. This is a calculation designed to give the user an efficient and cost-effective
approach to determine a business’s fair market value. This estimate of value is a guideline and should not be
construed as a replacement for a complete, comprehensive audit conducted by a licensed accountant.
APEX FIXUP INC.
VIM
Type of Value.
It is important that the user knows the difference between the two common standards of value:
“Fair Market Value” - probable price at which a willing buyer will buy from a willing seller when (1) both are
unrelated, (2) know the relevant facts, (3) neither is under any compulsion to buy or sell, and (4) all rights and
benefit essential in (or attributable to) the item must have been included in the transfer, acting at arms-length
in an open and unrestricted market.
“Investment Value” - “the value to a particular investor based on individual investment requirements and
expectations”. Most institutions (SBA, IRS, ERISA, IBBA) consider “fair market value” as the standard and is
the output of this calculation report.
Assets or Equity?
It is also important that the user understand the difference between a “value of equity” (stock sale) vs the
“value of assets” (asset sale). Most small business transactions are completed as asset sales, which typically
include inventory, fixed assets, and intangible assets (goodwill). However, a stock sale is not uncommon and
would include all assets and liabilities. In the Key Terms & Definitions There are a few key terms the user must
know when reviewing this calculation report. In the real world, there are many variations on these basic
structures. This report doesn’t take into consideration a particular type of sale, but what’s included in the sale
(or value). For instance, an asset sale can include a certain amount of cash, A/R and assumption of liabilities;
while a stock sale could include just inventory, fixed assets and goodwill.
Control
Lastly, it is important that the user understand the difference between a “control value” and a “non-controlling
value”. Control refers to the ability to manage or control the business. A minority interest, by definition, does
not have control. Minority interests in a business are typically worth less, often a lot less, than the
proportionate share of the business. Ask yourself, would you buy a minority interest in a privately held
company where you have no control? The value in this calculation report is a 100% controlling value.
APEX FIXUP INC.
VIM
Company Profile
Dashboard
Contacts
The Idea
Company Full Name – Apex Fixup
Incorporated
The business is scalable
Demand is validated and relatively strong
Email – [email protected]
IP designs and products secured
Valuation as on 21/02/2018
International or Regional Expansion Planned
Financial Report Date 31/12/2017
The Company
The Team
Legal framework (bylaws) in place
Team committed full time
Advisory board non-existent
Business background with
experience
Start-up stage
Have the technical knowledge
Ministry License Active – Green Zone
Have entrepreneurial experience
Operating for 4 years
Marketing
Finance
The channels/networks for marketing are
active – social media and networking
Consistent profitability
Exit strategy has allowed for restructuring
of assets
The distribution is currently active
with rapid plans of expansion
Fair record
of finances
Good
marketing
and
distribution
Growth
Potential
Consistent
Profitability
Limited
Market
Operation
Analysis
APEX FIXUP INC.
Assessment
Encouraging
signs to
Invest
Action
VIM
Company Profile
Apex Fixup Incorporated





Licensed in Year 2014
Located in Jeddah, Saudi Arabia
Application-based operation
Capital of SR203,023
Financial data and analysis based on 3 out of 4 years
Core Business Description





Maintenance and repair orders placed on web application, handy men delivered in minimal time
Contracts active with major corporations and enterprises, organisations such as universities and
colleges to fasten and customise services
Percentage on each invoice
Skilled manpower on order-based payroll
Mission is to provide organic, sustainable solutions to maintenance needs and repairs
Team Description







2 Founders
17 Employees
Industry experience adds to 17 years for the labour force
Past Entrepreneurial experience is of 2 years within the team
Fully committed labour force
Founders have had executive positions in the past
Employees hired already have technical expertise
Competition Description




Target market: Estimated from customer profiling
Level of competition: Private options available to both residential and commercial clients
Competitive products are: Superior quality provided for minimal
Marketing approach: Word of mouth and social media has been successful for promotion, expanding
into online advertising
APEX FIXUP INC.
VIM
Company Profile
Ownership Composition
Ahmed Faisal – 45%
Ownership
Ahmed
Khalid
Employees
Khalid Al Hasan – 45%
Apex Fixup Employees – 10%
Description
With employee motivation and passion in mind, the partners and company has decided to provide each
employee from 10% of the total ownership share. The percentage ownership is to reduce given that the
company hires a certain number of employees during expansion. The majority of these employees include
administrative and sales staff.
APEX FIXUP INC.
VIM
The Risk Analysis
Company Risk Analysis
VIM has analysed and compared the subject business to similar businesses in its industry. We’ve expended
technology to isolate the “Critical Value Drivers” in most small businesses; including returns to shareholders,
ratio performance, customer/supplier concentrations, dependence upon owner, among others. To help develop
our discount and capitalisation rates, we’ve outlined the following risk analysis:
The above represents financial risk.
Financial Risk deals primarily with the
consistency and overall performance from a
financial perspective. Erratic, inconsistent
and below industry average performance
would result in higher risk, while
consistency and performance above
industry averages would result in lower risk.
The above represents the quality of
financial information. Quality of the
financial information is based on the
analyst's confidence level in the accuracy of
the financial statements. For instance, a
CPA or government audited financial
statement would have much lower risk
compared to an internally based financial
statement. There could also be risk in the
reliance upon an interim statement.
APEX FIXUP INC.
LOW
HIGH
LOW
HIGH
VIM
The above represents diversification
risk. Diversification risk is based on (1)
diversification of customers (reliance upon 1
or 2 main customers); (2) diversification of
suppliers (reliance upon a single supplier);
(3) product or service mix diversification
(reliance upon a sole product or service);
and (4) geographic diversification
(significant reliance upon location). The
case reports higher than average
diversification risk due to the product mix
and company focussed too highly in one
particular market and one geographical
location.
The above represents management risk.
Management risk is the reliance upon the
current owner(s) of the business and/or key
management or another key employee. For
instance, the more specialized a
professional practice or business, the more
likely that business will be reliant upon its
owner. There could also be a significant
dependence upon a key sales person.
APEX FIXUP INC.
LOW
HIGH
LOW
HIGH
VIM
The above represents industry risk. The
lower the industry growth rate, the higher
the risk. These metrics and solutions need
to be localised as much as possible, with an
eye on international markets.
The above represents competition risk. If
the business is dependent upon its location,
it most likely has a high competition risk.
Businesses with higher barriers to entry can
sometimes have lower risk of competition.
Just because a business has no competition,
does not mean there is "low" competition
risk. What's the likelihood of a new
competitor entering the market?
LOW
HIGH
LOW
HIGH
Although Apex Fixup Inc is operating in an
industry with relatively high barriers to
entry (technical knowledge requirement,
capital required), this is not a long-term
projection. In the long term the trend shows
more and more people will take share of the
market.
APEX FIXUP INC.
VIM
Financial
Generally, the analyst looks at every financial statement of relevant value to conduct a detailed study. This
helps the valuator understand, evaluate, and communicate the value and risk drivers present in the company.
For this calculation report, we are going to limit this analysis to the adjusted and projected earnings, as well as
the assets & liabilities included in the calculation of value.
“ADJUSTED EARNINGS” is the process of estimating the value of a business or business interest. It requires
the adjustment of certain financial statements to be more accurate in the case of the company trying to
mislead; when restated they provide an accurate representation of performance. Typical adjustments for small
to mid-size businesses include excess officer compensation, owner’s benefits or “perks”, one-time expenses, or
other nonrelated businesses expenses and/or revenue. See the Adjusted Earnings overleaf.
2015
2016
2017
Projected
SR2,427,277
SR2,281,901
SR2,445,997
SR2,758,325
SR17,827
(SR11,048)
(SR56,536)
SR25,362
Depreciation
SR18,431
SR20,100
SR8,898
SR8,000
Amortization
SR0
SR0
SR0
SR0
Interest
SR8,297
SR10,674
SR11,195
SR12,500
Unadjusted EBITDA
SR44,555
SR19,726
(SR36,443)
SR45,862
SR375,000
SR375,000
SR375,000
SR375,000
Officer’s Benefits
SR35,500
SR35,500
SR34,000
SR35,000
Officer’s Perks
SR20,000
SR20,000
SR20,000
SR20,000
(SR34,000)
(SR34,000)
(SR34,000)
(SR34,000)
SR2,217
SR0
SR0
SR0
(SR125,000)
(SR125,000)
(SR125,000)
(SR125,000)
SR0
SR0
SR0
SR0
SR318,272
SR291,226
SR233,557
SR316,862
(SR125,000)
(SR125,000)
(SR125,000)
(SR125,000)
SR193,272
SR166,226
SR108,557
SR191,862
Revenue
Pre-Tax Profit
Officer’s Compensation
Rent Adjustment
Historical Rent
Owner Replacement
Add Back
Seller’s Discretionary Earnings
Less: Economic Replacement Salary & Benefits
Adjusted EBITDA
APEX FIXUP INC.
VIM
As shown on the previous page, we’ve normalised earnings by starting with unadjusted “EBITDA”, which is
earnings before interest, taxes, depreciation, and amortization. We then arrive at Seller’s Discretionary
Earnings or “SDE”. Most smaller “main-street” businesses typically sell based on a multiple of
SDE. Then deduct fair market salary and benefits for an owner/operator (or manager / CEO, depending on the
size of the company), to arrive at “Adjusted EBITDA”.
Projected Earnings
The next step is to project out earnings for the next 5 years. If historical year performance shows good basis for
projection, it gets a high confidence, otherwise it is low. If inconsistent, the weightage is equal across. Based on
the information provided, the following shows the weighted adjusted EBITDA:
Seller’s Discretionary Earnings
Less: Economic Replacement Salary & Benefits
Adjusted EBITDA
Confidence Level or “Weights”
2015
2016
2017
Projected
SR318,272
SR291,226
SR233,557
SR316,862
(SR125,000)
(SR125,000)
(SR125,000)
(SR125,000)
SR193,272
SR166,226
SR108,557
SR191,862
10%
10%
30%
50%
Total
100%
Weighted EBITDA
SR164,448
The next step is to add growth to the base year to arrive at a reasonable projection for the next 4 years.
 The first year should take into consideration the most likely scenario for year 1. Interim performance,
year over year performance, and annualized performance can be considered.
 Years 2-4 should be based on a realistic pro-forma model (not unrealistic assumptions).
 For the last year, we have used a sustainable growth rate going forward taking into consideration
inflation plus a small amount of industry growth. The projected cash flows are below.
PROJECTED CASH FLOWS
PROJECTED CASH FLOWS
Growth Rate - Year 1
Already Projected
SR164,448
Growth Rate - Year 2
2.0%
SR167,737
Growth Rate - Year 3
2.0%
SR171,092
Growth Rate - Year 4
1.0%
SR172,803
Growth Rate - Year 5
1.0%
SR174,531
Sustainable Growth
3.0%
SR179,767
APEX FIXUP INC.
VIM
Adjusted Balance Sheet
From the balance sheet, we will simply adjust for what assets and liabilities are included in the calculated value.
The adjusted balance sheet is as follows:
Assets Included in Value
Cash
SR0
A/R
SR55,360
Normal Operating Inventory
SR22,530
Excess Inventory
SR0
Other Current Assets
SR0
Fixed Assets
Other Non-Goodwill/Non-R/E Assets
Total Assets
SR225,410
SR0
SR303,300
Liabilities Assumed in Value
Accounts Payable Assumed by Buyer
SR51,680
Short-Term Notes Assumed by Buyer
SR0
Other Current Liabilities Assumed by Buyer
SR0
Long-Term Liabilities Assumed by Buyer (non-R/E)
Total Liabilities Assumed by Buyer
SR48,597
SR100,277
Equity and assets may be adjusted to include those relevant to sale or exit. This is done above.
The majority of smaller to mid-market businesses will sell based on an asset transaction (inventory, fixed
assets, and goodwill).
We’ve simply developed a model to start with this “asset value”, then add additional working capital or deduct
liabilities included. All must be reviewed carefully.
APEX FIXUP INC.
VIM
Valuation Methodology
This opinion of fair market value is based on



a going concern assumption
with management operating in a rational manner
with a goal of maximizing owner value of the underlying assets.
Although there are multiple approaches to value, we have selected three methods:
Asset
Method
APEX FIXUP INC.
Discounted
Future
Earnings
Method
Direct
Market
Data
Method
VIM
Adjusted Asset Method
Methods from the Asset Approach are often appropriate in the following
situations:




The company is considering liquidating or going out of business;
The company’s earnings cannot be estimated;
The company gains little or no value from labour or intangible assets (e.g., real estate or holding
companies);
Most of the company’s assets are made of liquid assets or other investments (e.g., marketable
securities, real estate, mineral rights).
The asset approach is used when the business is not generating a high enough return on its assets to result in
“excess earnings” or “goodwill”.
Adjusted Balance Sheet
Assets Included in Value
Cash
SR0
A/R
SR55,360
Normal Operating Inventory
SR22,530
Excess Inventory
SR0
Other Current Assets
SR0
Fixed Assets
Other Non-Goodwill/Non-R/E Assets
Total Assets
SR225,410
SR0
SR303,300
Liabilities Assumed in Value
Accounts Payable Assumed by Buyer
SR51,680
Short-Term Notes Assumed by Buyer
SR0
Other Current Liabilities Assumed by Buyer
SR0
Long-Term Liabilities Assumed by Buyer (non-R/E)
SR48,597
Total Liabilities Assumed by Buyer
SR100,277
Value #1 – Estimated Value of Assets Less Liabilities
SR203,023
ADJUSTED BALANCE SHEET
As shown above, the first value is the adjusted asset method and calculates to an estimated value of
SR203,023.
APEX FIXUP INC.
VIM
Discounted Future Earnings Method
The discounting of future benefits to a present value is a theoretically truthful
method of value when investors are seeing a return on their investment using
suitable discount rate and future benefits.
This method is often used when projected cash flows are expected to be uneven
because of irregular growth or other factors.
The application of this method requires the following critical decisions:




The selection of a type of financial return to be forecast (we’ve decided to use adjusted EBITDA);
To apply the return on investment capital
The number of years to forecast (we’ve forecasted 5 years);
The selection of a discount rate to be applied to the return selected
Basically, we are simply forecasting future cash flows, discounting the returns to their present
value based on a discount rate specific to the risk of the investment.
Then finding terminal value, which is also discounted and added to the sum of the present value of the future
cash flows.
DISCOUNT RATE BUILD-UP
Financial Risk
28%
Quality of Financial Information
28%
Diversification Risk
23%
Management Risk
23%
Industry Risk
29%
Competition Risk
33%
Required Rate of Return on EBITDA
27%
Less: Sustainable Growth Rate
Capitalization Rate on EBITDA
-3 %
24%
The analyst has calculated the risk as being below the industry average and the discount rate (3%) on EBITDA
of 27 %. To arrive at a discount rate, we subtracted a long-term growth rate into perpetuity of 3 % Once the
long-term growth rate is subtracted from the discount rate, the capitalization rate on EBITDA is calculated at
24 %.
APEX FIXUP INC.
VIM
Finding present values of future cash flows, we now find the Terminal Value then the Adjusted DCF Value.
DISCOUNTED CASH FLOWS
Present Value - Year 1
SR129,148
Present Value - Year 2
SR103,453
Present Value - Year 3
SR82,871
Present Value - Year 4
SR65,733
Present Value - Year 5
SR53,171
Present Value - Terminal Value
SR225,067
Estimated Value Before Adjustments
SR659,443
Add: Current Assets Less Operating Inv.
Deduct: Liabilities Assumed
Valuation #2: Estimated Value After Adjustments
SR55,360
(SR100,277)
SR614,526
The final value will be given a weightage (importance).
APEX FIXUP INC.
VIM
Comparable Transaction Method
The Direct Market Data Method, DMDM, develops a value based on the
transaction values for which similar businesses have been sold. We access a huge
database of international transactions to arrive at conclusions. Database provides
us with multipliers of each industry segment, used below:
VALUE
Weighted Revenue
x Multiplier of Revenue
Estimated Value Before Adjustments
Weighted Seller Discretionary Earnings
x Multiplier of SDE
Estimated Value Before Adjustments
Weighted EBITDA
x Multiplier of EBITDA
Estimated Value Before Adjustments
A
B
C
CONFIDENCE
SR2,583,879
0.64
SR1,657,817
50 %
SR289,448
2.83
SR818,674
25 %
SR164,448
3.86
SR634,917
25 %
100 %
Estimated Value Before Adjustments
Add: Current Assets Less Operating Inv.
Deduct: Liabilities Assumed
Value #3 Estimated Value After Adjustments
SR1,192,306
SR55,360
(SR100,277)
SR1,147,389
An expert looks at confidence levels and the technical facts to provide best value.
APEX FIXUP INC.
VIM
Finally, a Resolution of Values
VALUE
CONFIDENCE
EXTENSION
Asset Approach
SR203,023
0%
SR0
Income Approach
SR614,526
50 %
SR307,263
Market Approach
SR1,147,389
50 %
SR573,695
Estimated Value – 100% Controlling Interest
SR880,958
Less: Asset Value (Assets less liabilities assumed)
(SR203,023)
Estimated Intangible Value (Goodwill)
SR677,935
Based on the confidence level of the analyst, the estimated value of the company is SR880,958.
The value after estimated value represents the goodwill approximately.
Improvement
Implementation
Calculation
Analysis
VIM does not represent or endorse the accuracy or reliability of any advice, opinion, statement or any other information displayed or distributed through this report
or its website. The estimates and the data contained herein are made using the information provided by the user, publicly available information and data for different
industries. VIM has not audited or attempted to confirm this information for accuracy or completeness. Under no circumstances the present report is to be used or
considered as an offer, solicitation, or recommendation to sell, or a solicitation of any offer to buy any security. VIM excludes any warranties and responsibilities
concerning the results to be obtained from the present report nor their use and shall not be liable for any claims, losses or damages arising from or occasioned by any
inaccuracy, error, delay, or omission, or from use of the report or actions taken in reliance on the information contained in it. The use of this report and the
information provided herein is subject to VIM online Terms of Use and Privacy Policy.
APEX FIXUP INC.
VIM
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