Revenue EBITDA Operating Profit (EBIT) Net interest Taxation Net Profit
Cash flow Summary Cash flow from operations Capex Dividends Change in net debt Change in WC FCFE
Relative Valuation data EV/ Sales EV / EBITDA EV / Invested Capital PE P/ Book Value
Sales (Revenue) Cost of Goods Sold (COGS) Gross Margin Staff, Gen & Admn Exp (SG&A) EBITDA Depreciation EBIT Interest Other Income PBT Tax PAT Minority Interest Reported PAT
This is from the Annual Report of Century Textiles and Industries Limited for the year 2008-09 Rs. In Crores 2008-09 A CASH FLOW FROM OPERATING ACTIVITIES: Profit For The Year Before Taxation : Add / (Less) : Depreciation and Amortization (Surplus) / Loss on sale / discardment of Fixed Assets (Net) Interest and Finance charges (Net) Dividend on Investments Proportionate amounts written off against Miscellaneous Expenditure Prior Period Adjustments (Net) Operating Profit Before Working Capital Changes Adjustments for : Trade and other receivables Inventories Trade Payables Cash Generated From Operations Add / (Less) : Voluntary Retirement Compensation Direct Taxes Paid Net Cash Generated From Operating Activities 346.95 206.42 -54.09 97.2 -2.74 99.99 -0.71 693.02 -4.76 -57.69 107.55 738.12 -16 -48.32 673.8
CASH FLOW FROM INVESTING ACTIVITIES : Purchase of Fixed Assets (Includes Borrowing Costs Capitalized) Sale of Fixed Assets Interest Received Dividend on Investments Long term Investments Acquired Current Investments Acquired Current Investments Sold Net Cash Used in Investing Activities -892.33 72.37 6.59 2.74 -18.84 -798.67 798.67 -829.47
CASH FLOW FROM FINANCING ACTIVITIES : Working Capital and Short Term Borrowings Repayment of Other Borrowings Other Loans taken Interest and Finance Charges paid Dividend Paid Tax on Dividend Net Cash Generated From Financing Activities NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS -37.93 -368.64 748.08 -117.89 -41.78 -7.12 174.72 19.05
Cash and Cash equivalents - Opening balance Cash and Cash equivalents - Closing balance
46.64 65.69
CALCULATION OF FCFF FOR THE CURRENT YEAR FROM THE ABOVE Net cash generated from Operating activities Add / Less Net cash used in Investing activities Free Cash Flow to Firm
CALCULATION OF FCFE FOR THE CURRENT YEAR FROM THE ABOVE Net cash generated from Operating activities Add / Less Net cash used in Investing activities Add / Less Net Cash generated / used from / in Financing activities : Net debt borrowed Interest and finance charges paid Net Preference shares issued Prefrence dividend paid including tax on dividend Equity shares issued (Equity dividend paid is delebrately not included) Free Cash Flow to Equity holders
397.73 170.16 2.88 89.18 -8.1 92.6 -0.5 743.95 -30.91 -138.51 175.08 749.61 -54.35 -110.1 585.16
-694.35 2.37 3.89 8.1 -11.76 -1531.06 1531.06 -691.75 CASH FLOW FROM FINANCING ACTIVITIES : 17.94 -576.49 674.95 -100.56 0 0 15.84 -90.75 Net debt borrowed Preference shares issued Interest and Finance charges paid Preference dividend paid including tax on dividend Equity shares issued Equity dividend paid including tax on dividend
137.39 46.64
Valuation of Equity shares using FCFF Present Value of FCFF including the PV of Terminal Value Add: Opening Cash and Cash equivalents Less : Preference shares outstanding including the preference dividend payable to them Less : Debt outstanding including interest charges payable to them Value of Equity Number of Equity shares Intrinsic value of equity per share is : Value of Equity / Number of Equity shares
Assumptions
Revenue growth rates have to be projected based on business conditions Capex can be expressed as a percentage of Revenue or as a percentage of Net o Depreciation can be expressed as a percentage of Revenue or as a percentage of Working capital items like cash, BR, inventory etc can be expressed as a percenta Trademarks, intangibles, goodwill, other assets, deferred taxes and pension obliga EBIT and / or EBITDA / NOPAT margins can be expressed as a percentage of Re Tax rate is to be projected
onditions ercentage of Net or Gross Fixed assets as a percentage of Net or Gross Fixed assets sed as a percentage of Revenue or as a percentage of Net or Gross Fixed Assets and pension obligations in the balance sheet have to be projected based on estimates percentage of Revenue
Sales Cost of Goods Sold (COGS) EBITDA (Operating Income) Dep & Amortisation Other non-cash charges EBIT Interest EBT Tax EAT Sales Growth EBITDA Margin Net capex Net working capital Net debt raised Preference capital raised Equity capital raised Outstanding debt Outstanding preference shares Outstanding equity shares Outstanding number of eq sh Cost of debt Effective Tax Rate Beta of the company Risk Free Rate Market Return Cost of equity Cost of Preference shares WACC Terminal rate
Year 3
Year 4
Terminal Year 5
DCF VALUATION FCFF Revenue X Operating Margin (%) = Operating Profit Less Depreciation = EBIT Effective Tax Rate (%) Tax Adjusted EBIT Add Depreciation Add Other Non Cash Charges Less Increase / Decrease in WC Less Capex Free Cash Flow to the Firm
Discounted Free flow for the Operating period Terminal Value Discounted Firm Value Less Total Debt & Pref Capital Add Transferable Liquid Investments Total Equity Value of the Company Number of Shares in issue Intrinsic Value of per share Current Market Value per share Weighted Average Cost of Capital
Add
WACC Cost of Equity Rf + B (Rm - Rf) Rf Beta Rm Cost of Equity Cost of Debt (pre-tax) Cost of Debt (post-tax) WACC
Terminal Value (Value driver formula) Terminal Growth Rate (%) Terminal Value Discounted
VALUATION FCFE Revenue Operating Margin (%) Operating Profit Depreciation EBIT Interest Charges paid EBT Effective Tax Rate (%) EAT Depreciation Other Non Cash Charges Increase / Decrease in WC Capex Pref Dividends Paid Net change in Debt Free Cash Flow to the Equity shareholders 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Discounted Free flow for the Operating period Terminal Value Discounted Equity Value Transferable Liquid Investments Total Equity Value of the Company Number of Shares in issue Intrinsic Value of per share Current Market Value per share
Terminal Value (Value driver formula) Terminal Growth Rate (%) Terminal Value Discounted
GIVEN Opening Revenue (Rs) Revenue growth per year Operating Margin Depreciation (Rs) Effective Tax Rate Other non-cash charges (Rs) Inc / Dec in Working Capital (Rs) Capex Pref Div paid per year Debt raised during the year Cost of Debt Risk Free rate of Interest Market Return Beta of the Stock Terminal Growth Rate Debt outstanding Encashable liquid investments Total equity shares issued by the company Number of shares in issue Current Market Price Cash flow projection period Pref Shares outstanding 10000 25% 15% 700 30% 500 300 2000 0 700 14% 6% 16% 1.15 2.50% 2000 100 7500 750 45 5 0
per year per year per year in the third year per year at the beginning of the 4th year
years
A SIMPLE DISCOUNTED CASH FLOW (DCF) MODEL FOR VALUING A SH Revenue Growth Rate Terminal Growth Rate Operating Margin Tax Rate Capex Growth as % of gross assets Inc WC as % of revenues Cost of Debt Cost of Equity using CAPM Debt Equity Ratio Weighted Avg Cost of Capital Equity No.of Shares at Rs.10 Face Vale per Share Total Capital FCFF 22% 4% 15% 25% 2% 1% 12% 17.33% 2:03 14.00% 60 Rs 6 100 Rs Year 0 Year 1 Year 2
Revenues Operating Margin EBIT Taxes EBIT(1-t) + Depreciation - Capital Expenditures - Chg WC Free Cash Flow to the Firm (FCFF) Terminal year Present Value of FCFF Present Value of Terminal year cash flow The Valuation PV of FCFF during growth phase = PV of Terminal Value = Value of Operating Assets of the firm = Value of Excess Cash & Non-operating assets= Value of Firm = - Value of Outstanding Debt = Value of Equity = Value of Equity per share =
244.00 0.15 36.60 9.15 27.45 5.00 10.00 1.22 21.23 18.62
297.68 0.15 44.65 11.16 33.49 5.00 10.00 1.49 27.00 20.78
EL FOR VALUING A SHARE Risk Free Rate of Return Market Return Beta of the Stock 7.50% 15% 1.31
45.25
Year 3
363.17 0.15 54.48 13.62 40.86 5.00 10.00 1.82 34.04 354.20 22.98 239.11
0 150 30 120
1 160 35 125
2 170 40 130
3 180 45 135
A SIMPLE DISCOUNTED CASH FLOW (DCF) MODEL FOR VALUING FCFF Revenues Operating Margin EBITDA Less: Dep and Amortization Taxes EBIT(1-t) + Depreciation+Other non cash charges - Capital Expenditures - Chg WC Free Cash Flow to the Firm (FCFF) Present Value of FCFF Year 0 306335.70 0.254 77809.27 6559.90 22613.17 48636.19 6559.90 11968.70 458.60 42768.79 Year 1 335284.42 0.263 88057.76 6559.90 26079.32 55418.54 6559.90 15622.54 458.60 45897.30 41432.06 Year 2 366968.80 0.272 99656.11 6559.90 29790.79 63305.42 6559.90 15622.54 458.60 53784.18 43828.16
The Valuation PV of FCFF during growth phase = PV of Terminal Value = Value of Operating Assets of the firm = Value of Excess Cash & Non-operating assets= Value of Firm = - Value of Outstanding Debt = - Value of Pref sh outstanding = Value of Equity = Value of Equity per share =
Calculation of WACC Post tax cost of debt Cost of Equity Cost of Preference shares Debt for years 1 to 5 Equity Preference shares Total Capital WACC for years 1 to 5 Debt for year 5 onwards
Equity Preference shares Total Capital WACC for year 5 onwards Interest on debt Interest on debt after year 5
ODEL FOR VALUING A SHARE FCFF Year 3 401647.35 0.281 112782.12 6559.90 33991.11 72231.11 6559.90 15622.54 458.60 62709.87 46130.04 Year 4 439603.03 0.290 127636.99 6559.90 38744.67 82332.42 6559.90 15622.54 458.60 72811.18 Year 5 Terminal Year
481145.51 0.300 144448.44 6559.90 44124.33 93764.21 6559.90 15622.54 458.60 84242.97 6946843.89 Terminal period value 48349.87 50498.70 4164224.10 PV of Terminal period
Revenue Growth Rate Terminal Growth Rate Operating Margin Tax Rate Capex Growth as % of incremental revenues Inc WC as % of incremental revenues Cost of Debt Cost of Equity using CAPM Debt Equity Ratio Weighted Avg Cost of Capital Equity No.of Shares at Rs.10 Face Vale per Share Total Capital FCFE
25% 5% 15% 30% 5% 2% 12% 16.80% 200000 11.20% 100000 Rs 10000 100 Rs Year 0 Year 1 1
Revenues Operating Margin EBITDA Less: Interest paid Less: Depreciation & Amort EBT Taxes EAT + Depreciation and non-cash charges - Capital Expenditures - Chg WC +/- Net change in debt - Dividends to Pref shares Free Cash Flow to Equity Shareholders (FCFE) Present Value of FCFE
10000.00 0.15 1500.00 280.00 700.00 520.00 156.00 364.00 1200.00 0.00 300.00 0.00 1264.00
12500.00 0.15 1875.00 280.00 700.00 895.00 268.50 626.50 1200.00 0.00 300.00 0.00 1526.50 1306.93
The Valuation PV of FCFE during growth phase = PV of Terminal Value = Value of Operating Assets of the firm = Value of Excess Cash & Non-operating assets= Value of Equity = Value of Equity per share =
26.49
Year 2 2 15625.00 0.15 2343.75 280.00 700.00 1363.75 409.13 954.63 1200.00 0.00 300.00 0.00 1854.63 1359.47
Year 3 3 19531.25 0.15 2929.69 280.00 700.00 1949.69 584.91 1364.78 1200.00 2000.00 300.00 0.00 264.78 166.17
Year 4 4 24414.06 0.15 3662.11 378.00 700.00 2584.11 804.63 1779.48 1200.00 0.00 300.00 700.00 0.00 3379.48 1815.84
Year 5 5 30517.58 0.15 4577.64 378.00 700.00 3499.64 1079.29 2420.35 1200.00 0.00 300.00 0.00 3320.35 29545.46 1527.46 13591.79
Terminal Year
Inputs Earnings before interest and taxes = Expected growth for next 5 years = Expected growth after year 5 = Tax rate = Debt ratio for the firm = Cost of equity = Pre-tax cost of debt = Return on capital in high growth= Return on capital in stable growth = 0 Expected Growth rate Reinvestment rate EBIT Taxes EBIT(1-t) - Reinvestment FCFF Terminal Value Present Value Value of Firm = Value of Equity = Value of Debt = EBIT Interest Exp EBT Taxes Net Income - Reinvestment + New Debt Issued FCFE Terminal Value of Equity Present Value Value of Equity = Capital Structure Debt at end of year Cost of Equity Pre-tax Cost of Debt After-tax Cost of Debt Cost of Capital
$ 100.00
$ $ $ $ $
100 10% 5% 40% 20% 12% 7% 12% 10% 1 10% 83.33% 110.00 44.00 66.00 55.00 11.00
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ 9.96 $ 9.92 $ 617.01 $ 670.42 $ 728.31 $ 493.61 ! Equity as % of value $ 123.40 ! Debt as % of value $ 100.00 $ 110.00 $ 8.64 $ 101.36 $ 40.54 $ 60.82 $ 55.00 $ 10.68 $ 16.50 $ $ 493.61 14.73 $ 121.00 $ 9.39 $ 111.61 $ 44.65 $ 66.97 $ 60.50 $ 11.58 $ 18.05 $ 14.39
$ 9.88 $ 791.04
$ 9.84 $ 858.98
$ $ $ $ $ $ $ $
5 10% 83.33% 161.05 64.42 96.63 80.53 16.11 932.56 577.40 932.56
! This is the present value of the c starting in each year; year 2, year
$ $ $ $ $ $ $ $ $ $
161.05 12.03 149.03 59.61 89.42 80.53 14.71 23.60 746.05 436.72
$ 123.40
Terminal Year
! This is the present value of the cash flows to the firm starting in each year; year 2, year 3
FCFF ebit taxes ebit(1-t) reinvestment fcff terminal value present value value of firm value of debt value of equity Wtd avg cost of capital
FCFE ebit int exp ebt taxes net income reinvestment new debt issued fcfe terminal value present value value of equity cost of equity
ebit on day zero ebit growth rate during the growth period terminal growth rate tax rate debt ratio for the firm cost of equity reinvestment rate or capex and incremental working cap
FCFF Model DCF Analysis: WACC Method Add Less = Add Add Add Add Add Add Less Less
Net income (PAT) Interest expense Tax effect of interest expense After-tax interest expense Net operating profit after tax (NOPAT) Depreciation Amortization Deferred taxes (non cash charges) Minority interest Income from affiliates Other noncash items Changes in net working capital (NWC) Capital expenditures Other Free cash flow Terminal value (EBITDA multiple) Total free cash flows to capital providers Valuation Firm value Plus: excess cash Less: debt outstanding Less: minority interest Less: preferred stock Equity value Value per share WACC calculation Debt/market equity Relevered beta Ke WACC
FCFE Model
FCFF Model adjusted for leverage of the firm DCF Analysis: Adjusted Present Value (for leverage)
DCF Analysis: Equity Residual Method Net income (PAT) Depreciation Amortization Deferred Taxes Minority Interest Income from Affiliates Other Non-Cash Items Changes in Net Working Capital Equity Cash Flow from Operations Capital Expenditures Change in Debt Change in Preferred Preferred Dividends (includes convertible) Other Residual Cash Flows Terminal Value (P/E Multiple) Cash Flows to Common Equity Holders Valuation Equity Value Value per Share Plus: Debt Outstanding Plus: Minority Interest Plus: Preferred Stock Less: Excess Cash Firm Value Cost of Equity Calculation Debt/Market Equity Relevered Beta Ke
Net income (PAT) Add Interest Expense Less Tax Effect of Interest Expense = After Tax Interest Expense NOPAT Add Depreciation Add Amortization Add Deferred Taxes Add Minority Interest Add Income from Affiliates Add Other Non-Cash Items Less Changes in Net Working Capital
Less
Capital Expenditures Other Unlevered Free Cash Flow Terminal Value (EBITDA Multiple) Cash Flows to Capital Providers Valuation Unlevered Free Cash Flows Debt Tax Shield Firm Value Plus: Excess Cash Less: Debt Outstanding Less: Minority Interest Less: Preferred Stock Equity Value Value per Share
Add
Aban Offshore - Parag Parikh CASH FLOW OPENING CASH AND BANK Profit After Tax Investment Income Interest Paid Miscellaneous Expenses W/Off Depreciation Minority Income Deferred Taxation Others Change in Working Capital CASH FLOW FROM OPERATING ACTIVITIES Change in Fixed Assets Change in Investments Investment Income CASH FLOW FROM INVESTING ACTIVITIES Increase in Equity Change in Preference Capital Change in Borrowings Change in Minority Interest Interest Paid Dividend- Equity Dividend- Preference Capital Minority Income CASH FLOW FROM FINANCING ACTIVITIES NET CHANGE IN CASH CLOSING CASH AND BANK
Less Add Add Add Add Add / Less Add / Less Add / Less
Add Add / Less Add / Less Add / Less Less Less Less Less
Income
Sales Turnover Exise Duty Net Sales Other Income Stock Adjustments 10996.72 939.61 10057.11 171.12 -76.69 10151.54
Raw Materials 5413.77 Power & Fuel Cost 164.77 Employee Cost 574.84 Other Manufacturing Expenses 193.84 Selling and Admin Expenses 1713.73 Miscellaneous Expenses 377.93 Preoperative Expenses Capitalized 0 Total Expenses 8438.88 Operating Profit 1541.54 (Total Income-Other Income - Total Expenses) PBDIT (add back Other Income) 1712.66 Interest 129.98 PBDT 1582.68 Depreciation 120.9 Other Written Off 0 Profit Before Tax 1461.78 Extra-Ordinary items 56.29 PBT (Post Extra Ord Items) 1518.07 Tax 320.74 Reported Net Profit 1197.33
Tommy Hilfiger
Less = Less Less = Less = Less Less = Add Add Less Add Less Less =
Total Revenues Cost of Goods Sold Gross Profit SG & A expense D&A expense Operating Income (EBIT) Interest expense Taxable Income Tax expense Minority Interest and Other Net Income Interest D&A expense Capital Exp Asset Sales Acquisitions Changes in WC FCFF
Add = Less = Less Less Less Less = Add Less Add = Less =
Star Bucks Corporation Income Statement Retail Sales Speciality Sales Net Sales Cost of Goods Sold Gross Margin Store Operating Expenses Other Operating Expenses Depreciation and Amortisation SG & A expenses Operating Income (EBIT) Interest and Other Income Interest and Other Expense Gain on Sale of Investment Earnings Before Tax Income Taxes Net Income Number of Shares Earnings Per Share
2000 1807704 315810 2123514 961999 1161515 671420 64292 111578 119250 194975 21255 0 216230 432460 86492 129738 182190 0.71
EBIT Taxes on EBIT NOPAT Depreciation and Amortization Capex Change in WC Free Cash Flow to Firm
Parameters PBDIT Book Value of Assets Sales Profit after Tax Cash Flow Market Capitalization
Dabur
Industry Average
150
12.5 2 1.875
18 3.6 2.25
26 35 28 15 26
Dabur
HUL Rs. In Crores 150 140 70 60 30 25 15 13 100 90 600 550 Ratios 3.93 9.17
Industry Average
4.00 8.57
4.06 8.67
4.00 8.80
0.20 0.20
IPO Company
Rs Rs
270.53 Crores 27.05 Price per share of IPO Company on Relative Valuation basis
IPO Company
469.98 47.00
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Filters 1 Past 5 years growth of top line (Revenue or Sales) 2 Past 5 years growth of bottom line (PAT or Net Profit) 3 Past 5 years growth of EPS 4 Past 5 years EBIT, EBITDA, NOPAT & PAT margins 5 EBITDA to (Net Working Capital + Net Fixed Assets) ratio 6 EBITDA to EV (Market Capitalization of Equity + Debt - Excess Cash & CE) 7 PE ratio 8 PEG ratio (PE / EPS growth rate) 9 Dividend Yield Ratio (Dividend / Share price) 10 DSCR > 20% > 20% > 20% > 20% > 20% > 15% < 10 <1 > 5% >3
Weight 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%
10%
Scores 1 to 5 3 2 3 4 2 3 4 5 2 3
0.3 0.2 0.3 0.4 0.2 0.3 0.4 0.5 0.2 0.3 3.1