KIERULFF’S LECTURE NOTES ON HOW TO WRITE A VALUATION EXECUTIVE
SUMMARY
Your analysis should cover the macroeconomic environment as it applies to the company, an
industry analysis with emphasis on the company’s market segment, analysis of the
market/customer for the company’s products or services, an evaluation of its operations, an
examination of management, a financial analysis, a risk analysis, a valuation, and
recommendations to management. Valuation using the income and market methods should
culminate in a conclusion of value. Limit the paper to 20-25 double spaced pages—Cambria
12 or similar font—plus appendices. Use tables, charts, and other displays when they will
make your point clearer or more concise. For your references, use the American Psychological
Association guidelines.
A title page (not counted as part of the 25 page limit) should include title, names of team
members and their university, and name and contact information for the faculty sponsor.
The second page (also not counted in the limit) should be a table of contents. Next to the
major headings below are page recommendations; these should be considered as
recommendations, not requirements.
INTRODUCTION (1 page)
Purpose of the valuation (who is the audience?).
Methods employed.
Conclusion of value.
ECONOMIC ANALYSIS (2-3 pages)
Sources: BVR Economic Outlook Update ™, library material in handout, on-line
research.
Analysis of international economic situation and expected future trends as relevant
to the subject company.
Analysis of current and expected future U.S. GDP and its components, interest rates,
employment, consumer and business sentiment, and other macroeconomic
indicators as they apply to the subject company.
INDUSTRY ANALYSIS (2-5 pages depending upon the audience.)
Sources: Biz Miner/BVR Industry Financial Reports ™, First Research Industry Profiles
and State Profiles ™, Risk Management Association’s Annual Statement Studies (on
Reserve in library), library industry studies (particularly IBIS World), industry
association studies, primary research, public company 10-K (annual), 10-Q (quarterly),
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and 8-K (current) SEC reports on EDGAR database, or SEDAR if Canadian company,
other on-line research sources, other library material in handout.
Nature of the industry with emphasis on the segment(s) served by the company (Do
not include a discussion of the subject company in this analysis).
Describe the industry noting the NAICS and SIC codes.
Define the market segment(s) (usually smaller than the industry as defined
by NAICS and SIC codes): What customer problem(s) do companies in the
segment(s) address and how do prospective customers solve the problem(s)
currently? This defines the competition. Who are the segment(s) customers
(demographic and psychographic analysis)? What are the key factors that
lead to the buy decision (keys to success)?
Location of competitive firms, size and growth (past and expected future).
Are companies in the specific segment(s) start-up, young, mature, declining?
Sales cyclical or seasonal?
What is the nature of competition: Barriers to entry, number, size, and
location of competitive firms, horizontal and vertical integration in the
industry, competitive practices (price, quality, advertising, other)?
Describe the relationship with other institutions: government, unions, other.
Porter’s five factors analysis
What are the biggest challenges for the future of the industry and the
relevant segment(s)?
What are the prospects for the future of the industry?
Nature of research and development in the industry
Financial and risk analysis
What are the key ratios (using Risk Management Association’s Annual
Statement Studies, S & P ratios, competitor data, other)?
What are the most important risks in the segment(s)?
Compare risk using beta, coefficient of variation, coefficient of determination.
COMPANY ANALYSIS (2-8 pages.) In this section particularly, the length will depend
upon the audience and the material available.)
Market and Customers
What are the company’s current and expected future products/services?
What is the company’s geographic market area?
Are the company’s sales cyclical, seasonal?
What are the company’s competitive advantages and disadvantages in its market
given the industry’s keys to success factors and considered from the competition
and the customers’ standpoints?
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What is its market strategy (cost leader, differentiator, focus on a specific strategic
target, organic growth vs. growth by acquisition, other)?
Important Company Relationships with Government, Unions, other institutions
(Enumerate and describe)
Operations
Where is the company located?
Describe the company’s operations and include a work flow chart if possible. How is
the product / service produced and distributed?
Who are the company suppliers and independent contractors and how reliable are
they?
How does the company control inventory and quality?
Research and Development
What are the company’s research and development objectives?
How does the company compare with competition in this area?
Executive Team and Board of Directors
Education and Experience?
Management style and company culture?
Conclusions about management competence.
Financials
Data: (Some or most may be in an appendix).
Income statements and balance sheets (past 5-7 years).
Cash flow statements (past 5-7 years).
Common size financial statements (income and balance sheet line items as
percents of sales and balance sheet line items as percents of total assets—
vertical analysis).
Annual percent increase/decrease in financials over a 5-7 year period—
horizontal analysis).
Ratios.
Analysis of data
Analysis of key trends in financial statements and ratios
Comparison with industry and close competitors (using Risk Management
Associates Annual Statement Studies, S & P ratios, competitor data, other
sources).
Projections by management and financial analysts.
Risk Analysis
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Beta and Beta Coefficient of Determination (r2)
Coefficient of variation in net income, EBIT, EBITDA, EBIAT, free cash flow
Financial Risk: debt to market value of invested capital (enterprise value),
debt to assets
Operations risk: breakeven point (fixed cost v. variable cost)
Risk factors: Qualitative analysis
SWOT Analysis
VALUATION USING THE MARKET METHOD (3-4 pages)
Explanation of the Market Method: market comparibles (comps) method
using public companies, and transaction method using private sales.
Justification for including the companies used as comps. Justification should
show the extent to which the risks between the comp companies and the
subject company are similar. Put detailed comps analyses in an appendix as
necessary.
VALUATION USING THE INCOME METHOD (2-3 pages)
Explanation of the Income Method.
Justifications for selecting the values you used for the risk free rate, the
various risk premia, cash flows, and terminal value. You should come up
with values using the Duff and Phelps build-up models including CAPM.
Most of the quantitative analysis should be shown in the appendix in exhibits.
PRIVATE EQUITY DISCOUNTS (2-3 pages)
Discount for lack of marketability, minority discounts and premium for
control where applicable. Put details in an appendix where appropriate.
SUMMARY: CONCLUSION OF VALUE AND RECOMMENDATIONS (2-3 pages)
What are the important implications for the company’s future?
Summary of conclusion of value including the weight put on each valuation
method and the reasons for the weightings.
What are your recommendations to the company.
APPENDIXES