This PPT slide, part of the 28-slide Guide to Acquisition Strategy and Valuation Methodologies PowerPoint presentation, presents a detailed analysis of the discounted cash flow (DCF) valuation methodology for Target's business, focusing on the present value of projected free cash flows. It emphasizes the importance of examining historical financial data over a span of 2 to 3 years as a foundation for making projections. This approach aims to ensure that the projections are realistic until the business reaches a more stable state, typically within a 5 to 10-year timeframe.
The sample DCF analysis section includes key financial metrics from 2011 to 2022, such as revenue, EBITDA, EBIT, tax expense, and unlevered net income. It highlights growth rates, margins, and expenses, providing a comprehensive view of the financial trajectory. The projections indicate a gradual decline in growth rates, suggesting a maturation of the business.
The slide also outlines several sanity-checking key projections. For revenue, it recommends calculating implied market share based on third-party market size projections and evaluating trends against competitive pressures. For EBITDA, benchmarking projected margins against peers is crucial to assess the feasibility of the cost structure. Capex is identified as a significant component of free cash flows, with a suggestion to compare it as a percentage of sales. Changes in working capital should also be analyzed similarly to ensure accuracy in cash flow projections.
The final section discusses the discount factor, which is based on the target's expected weighted average cost of capital (WACC). This is essential for accurately determining the present value of future cash flows. Overall, the slide serves as a critical tool for stakeholders looking to understand the valuation process and the underlying assumptions that drive financial projections.
This slide is part of the Guide to Acquisition Strategy and Valuation Methodologies PowerPoint presentation.
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