ACC 345 Business Valuation Report Template Summary Business Valuation Report of Company ABC, Inc. Company ABC, Inc. Report Date, 20XX Contents INTRODUCTION3 Nature, Background, and History4...

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ACC 345 Business Valuation Report Template Summary Business Valuation Report of Company ABC, Inc. Company ABC, Inc. Report Date, 20XX Contents INTRODUCTION3 Nature, Background, and History4 Facilities4 Customers4 Management4 Competition4 Strengths and Weaknesses4 Ownership4 Major Shareholder Transactions4 Business Risks4 FINANCIAL ANALYSIS5 Financial Analysis Overview5 Balance Sheets5 Assets5 Liabilities5 Stockholder’s Equity6 Income Statements6 Normalization Adjustments6 ECONOMIC OUTLOOK7 Industry Analysis7 Industry Overview7 Competitive Landscape7 Products, Operations and Technology7 Sales and Marketing7 Finance and Regulation7 Regional and International Issues7 Labor Trends7 General Economic Analysis7 Interest rates7 GDP7 International and Domestic Trade Policy7 Monetary Policy7 Fiscal Policy7 BUSINESS VALUATION8 Valuation Approaches8 Asset Approach8 Income Approach8 Market Approaches8 Selected Method - Income Approach8 Prospective Analysis8 Discount rate9 Valuation calculation10 DISCOUNTS AND PREMIUMS11 Discount for Lack of Control11 Discount for Lack of Marketability11 FINAL CALCULATION OF VALUE12 SOURCES13 INTRODUCTION Description of the Assignment Guidance: Assume the intended use is for the sale of a minority stake of the company you’re valuing. This should be stated in this section of the report. Standard of Value Guidance: Assume the premise of value is that the business is a “going concern” as opposed to liquidation or other premise. Assume the standard of value is fair market value, as opposed to fair value, investment value, liquidation value or some other standard. This should be stated in this section. Company ABC, Inc. Brief History/Overview Guidance: This section should include a general overview of the following: Nature, Background, and History Facilities Customers Management Competition Strengths and Weaknesses Ownership Major Shareholder Transactions Business Risks 4 FINANCIAL ANALYSIS Financial Analysis Overview Guidance: This section should provide a general overview of the balance sheet, the major items present, the company’s capital structure, and any changes over time in these items. A common-size analysis (which is built in to your workbook) will help with this. Ask yourself questions such as, “Has the company taken on additional debt? If so, why?”, or “Does the company have a lot of Intangible Assets? If so, are they at risk for impairment?” Balance Sheets Assets Liabilities Stockholder’s Equity Income Statements Guidance: Similar to the balance sheet write-up, discuss major line items and drivers of those line items. For example, are there increases in Cost of Goods Sold? If so, what are the drivers of those costs? Normalization Adjustments Guidance: Discuss any normalization adjustments you’ve made. Remember, normalization adjustments are changes to the incomes statement (or balance sheet) that smooth out or “normalize” any anomalies that the company may have experienced. An example would be expenses related to a corporate merger or restructuring. This helps you in your prospective analysis by not including any unusual expenses or income. ECONOMIC OUTLOOK Industry Analysis Guidance: Research your industry by reviewing a select group of your company’s peers. By reviewing the annual report of 2-3 competitors you will get an understanding of these items below. You may also search the web for scholarly articles on your chosen industry or recent industry reports. Focus on the suggested items below: Industry Overview Competitive Landscape Products, Operations and Technology Sales and Marketing Finance and Regulation Regional and International Issues Labor Trends General Economic Analysis Guidance: Research the primary economy in which your company operates. Use the U.S. as the default if it’s a global firm, but try to incorporate any important global factors if a majority of its operations is abroad. Focus on the factors suggested below: Interest rates GDP International and Domestic Trade Policy Monetary Policy Fiscal Policy BUSINESS VALUATION Valuation Approaches Guidance: Discuss the major approaches below even though you’ll only be calculating the Income Approach. Explain what they are and how they’re derived. Asset Approach Income Approach Market Approaches Selected Method - Income Approach Guidance: Explain the mechanics of the calculation below. Discuss your selection for the cells in yellow – annual growth rate, and percentage of revenue for Gross Profit and Operating Expenses. Prospective Analysis Discount rate Guidance: Discuss the purpose of the discount rate in the valuation process. You do not have to explain each of these components, but note that they assign risk to different categories of the company. The risk-free rate is what a company would earn on a riskless government security. The equity risk premium is the risk above the risk-free rate one should expect on an equity security. The industry premium is the risk associated with a particular industry (i.e. manufacturing or retail). The specific company risk is a subjective amount applied by the valuation analyst based on his or her perception of the company’s risk. Valuation calculation Guidance: Discuss the mechanics of the calculation below. Provide your reasoning for the amounts chosen for the items in yellow (Depreciation, Capital expenditures, and Debt Reduction). DISCOUNTS AND PREMIUMS Discount for Lack of Control Guidance: You may choose a default discount amount of 15% or if you want to justify a higher or lower amount then you may do so. The following factors below should be considered in this discussion. Explain why each of these factors could only be done by a party with majority control and why a lack thereof could affect the value. Ability to appoint or change management Ability to determine management compensation and perquisites. Able to negotiate and consummate mergers and acquisitions. Can liquidate, dissolve, sell out or recapitalize the company. Able to declare and pay cash dividends. Able to decide what investments to hold and to sell. Block any or all of the above actions. Discount for Lack of Marketability Guidance: Similar to the DLOC, you may choose a default value. Use 25% or if you want you may justify a higher or lower amount. The following factors should be considered because these factors affect a company’s liquidity, which in turn affects its marketability. Suggested factors that should be considered: Company’s Dividend Policy Nature of the Company Company Management Amount of Control to be Transferred Restrictions on Transferability of Stock Holding Period for Stock Company’s Redemption Policy Costs Associated with a Public Offering Note: In practice there is a lot of effort spent on determining these discounts, but due to a lack of free resources and time it is impractical to require that in this course. 12 FINAL CALCULATION OF VALUE Guidance: Summarize the table below and what it is telling the reader. SOURCES The following sources were used to derive the conclusions in this report and the ultimate calculation of value: Current and historical financial statements were obtained for years ended: Industry data from: Economic data from: Other sources: 13 Company ABC Inc. Balance Sheets December 31, 2014 through 2018 2014201520162017201820142015201620172018 Current Assets Cash-$ -$ -$ -$ -$ - %- %- %- %- % Accounts receivable, net- - - - - - - - - - Inventory- - - - - - - - - - Other current assets- - - - - - - - - - Total current assets- - - - - - - - - - Property, plant & equipment- - - - - - - - -
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Answered 10 days AfterAug 31, 2022

Answer To: ACC 345 Business Valuation Report Template Summary Business Valuation Report of Company ABC, Inc....

Nitish Lath answered on Sep 10 2022
71 Votes
ACC 345 Business Valuation Model
Summary- Start Here
        To begin follow these steps:
        1. Enter the numbers from your company's balance sheet and income statement for each year, starting with
        the most recent year through the prior five years (Example: if the most recent is 2017 then go back through
        2013).
        2. Ratios auto-calculate but you may wish to make an adjustment if necessary. You will only use the ratios for
        explanatory or analysis purposes in your report. There is nothing more to do with them in this workbook.
        3. Create your prospective analysis by changing the growth rate for Revenue, the percentage of Revenue for
        Gross Profit and Operating expenses, and then add Other Income or expense items. You can do this in the
        cells highlighted in yellow. This will give you your projected net income, which you will then use to discount
        to present value on the "dcf" tab later. The default number for Revenue in the prospective analysis is the
        most recent year's Revenue number plus 2.5%. You may change it.
        4. On the "discount rate" tab you are welcome to leave the number as is or go through and make adjustments.
        In most cases you will need access to data that is unavailable or requires a paid subscription, which is why
        you're allowed to keep the default values. If you're able to obtain any of those figures then you may use them.
        The detail was provided to expose you to the concepts, but not actually require the research since it may be
        cost prohibitive.
        5. The "dcf" tab feeds your projected Net Income figures from the "prospective analysis" tab. To that number
        you will add back depreciation since it's a non-cash item and then subtract expected capital expenditures or
        and planned debt reductions. You may estimate these if you're unable to find any projection by the company.
        It is not required that these be fully accurate since you don't have access to management's plans. Enter those
        numbers in the yellow highlighted cells. You shouldn't have to change any other cells in that tab.
        6. On the last tab, "valuation summary", the only values you need to change are the cells in yellow for the DLOC
        and the DLOM. You may leave these as the default values since these also require access to data that may
        be only acquired via subscription or purchase. If you're able to find material supporting a change in those
        values then you're free to do so. The goal in introducing them in this manner is to get you exposed to the
        concepts, not the actual calculation as that is beyond the scope of this course.
        Consider these factors when working through the model:
        1. The financial statements you encounter in the annual report will look differently than they do in this model.
        Categories will be different than what you find in the annual report, so just use your best judgement when
        classifying them and if you need to lump certain costs together then do so. (Example: your company
        shows Cost of Sales of $100k, G&A of $50k, and Marketing expense of $10k. Combine the G&A and
        Marketing in the single line on the income statement called "General, Administrative and other non-operating
        expenses" in the amount of $60k. This places Marketing into the "Other" catch all category.
        2. You may insert any "Key Assumptions" that you want to convey using the space below the balance sheet,
        income statement, or prospective analysis. This could be anything from combining certain line items to
        explaining apparent anomalies.
        3. Make sure to net your interest income and expense on the income statement. So in some years you may have
        a positive balance and a negative in others.
        4. The "Normalization adjustments" listed on the "income statement" tab are referring to the adjustments discussed
        in module three. To recap - Normalization adjustments are changes that you as an analyst can make in order to
        "normalize" any anomalies or non-recurring items that may have been reported in the financial statements. For
        example, if your company was exposed to a natural disaster and you know management does not expect that
        type of major expense in the future then you can add it back under this section. Another example would be
        a class-action lawsuit that resulted in a major settlement. While companies are always subject to lawsuits, one that
        results in a material settlement may be removed if it's unexpected to occur again in the near future.
balance sheet
    Amazon Inc.
    Balance Sheets (in millions)
    December 31, 2017 through 2021
                                                            Common-size analysis
                    2017        2018        2019        2020        2021        2017        2018        2019        2020        2021
    Assets
    Current Assets
        Cash and cash equivalents            $ 30,986        $ 41,250        $ 55,021        $ 84,396        $ 96,049        23.6    %    25.4    %    24.4    %    26.3    %    22.8    %
        Accounts receivable, net and others            13,164        16,677        20,816        24,542        32,891        10.0        10.3        9.2        7.6        7.8
        Inventory            16,047        17,174        20,497        23,795        32,640        12.2        10.6        9.1        7.4        7.8
        Other current assets            -        -        -        -        -        - 0        - 0        - 0        - 0        - 0
            Total current assets        60,197        75,101        96,334        132,733        161,580        45.8        46.3        42.7        41.3        38.4
    Property, plant & equipment, net                48,866        61,797        72,705        113,114        160,281        37.2        38.0        32.3        35.2        38.1
    Other assets
        Operating leases            -        -        25,141        37,553        56,082        - 0        - 0        11.2        11.7        13.3
        Goodwill            13,350        14,548        14,754        15,017        15,371        10.2        8.9        6.6        4.7        3.7
        Other assets            8,897        11,202        16,314        22,778        27,235        6.8        6.9        7.2        7.1        6.5
            Total other assets        22,247        25,750        56,209        75,348        98,688        17.0        15.8        25.0        23.5        23.5
            Total Assets        $ 131,310        $ 162,648        $ 225,248        $ 321,195        $ 420,549        100.0    %    100.1    %    100.0    %    100.0    %    100.0    %
    Liabilities and Stockholders' Equity
    Current Liabilities
        Accounts payable            $ 34,616        $ 38,192        $ 47,183        $ 72,539        $ 78,664        26.4    %    23.5    %    20.9    %    22.6    %    18.7    %
        Accrued expenses & other current liabilities            18,170        23,663        32,439        44,138        51,775        13.8        14.5        14.4        13.7        12.3
        Unearned revenue            5,097        6,536        8,190        9,708        11,827        3.9        4.0        3.6        3.0        2.8
            Total current liabilities        57,883        68,391        87,812        126,385        142,266        44.1        42.0        38.9        39.3        33.8
    Long-Term Liabilities
        Long-term debt and lease obligations            24,743        33,145        63,205        84,389        116,395        18.8        20.4        28.1        26.3        27.7
        Other long-term liabilities            20,975        17,563        12,171        17,017        23,643        16.0        10.8        5.4        5.3        5.6
            Total long-term liabilities        45,718        50,708        75,376        101,406        140,038        34.8        31.2        33.5        31.6        33.3
            Total Liabilities        103,601        119,099        163,188        227,791        282,304        78.9        73.2        72.4        70.9        67.1
    Stockholders' Equity
        Common stock, less treasury            (1,832)        (1,832)        (1,832)        (1,832)        (1,832)        (1.4)        (1.1)        (0.8)        (0.6)        (0.4)
        Additional paid in capital            21,389        26,791        33,658        42,865        55,538        16.3        16.5        14.9        13.3        13.2
        Retained earnings            8,636        19,625        31,220        52,551        85,915        6.6        12.1        13.9        16.4        20.4
        Other comprehensive income (loss)            (484)        (1,035)        (986)        (180)        (1,376)        (0.4)        (0.6)        (0.4)        (0.1)        (0.3)
            Total Stockholders' Equity        27,709        43,549        62,060        93,404        138,245        21.1        26.9        27.6        29.0        32.9
                    $ 131,310        $ 162,648        $ 225,248        $ 321,195        $ 420,549        100.0    %    100.1    %    100.0    %    99.9    %    100.0    %
                    0.00        0.00        0.00        0.00        0.00
                    $ -        $ -        $ -        $ -        $ -
            *Key Assumptions:
income statement
    Amazon Inc.
    Statements of Income (in millions)
    December 31, 2017 through 2021
                                                        Common-size analysis
                2017        2018        2019        2020        2021        2017        2018        2019        2020        2021
    Sales            $ 177,866        $ 232,887        $ 280,522        $ 386,064        $ 469,822        100.0    %    100.0    %    100.0    %    100.0    %    100.0    %
    Cost of Sales            111,934        139,156        165,536        233,307        272,344        62.9        59.8        59.0        60.4        58.0
    Gross Profit            65,932        93,731        114,986        152,757        197,478        37.1        40.2        41.0        39.6        42.0
    General, administrative and
     non-operating expenses            61,826        81,310        100,445        129,858        172,599        34.8        34.9        35.8        33.6        36.7
    Operating Income            4,106        12,421        14,541        22,899        24,879        2.3        5.3        5.2        6.0        5.3
    Other Income (Expense)
        Interest (expense)        (646)        (977)        (768)        (1,092)        (1,361)        (0.4)        (0.4)        (0.3)        (0.3)        (0.3)
        Gain (loss) on sale of assets        -        -        -        -        -        - 0        - 0        - 0        - 0        - 0
        Other        346        (183)        203        2,371        14,633        0.2        (0.1)        0.1        0.6        3.1
                (300)        (1,160)        (565)        1,279        13,272        (0.2)        (0.5)        (0.2)        0.3        2.8
    Normalization adjustments
        Non-recurring items        -        -        -        -        -        - 0        - 0        - 0        - 0        - 0
        Legal settlements        -        -        -        -        -        - 0        - 0        - 0        - 0        - 0
        Other        -        -        -        -        -        - 0        - 0        - 0        - 0        - 0
                -        -        -        -        -        - 0        - 0        - 0        - 0        - 0
    Net income, before tax            $ 3,806        $ 11,261        $ 13,976        $ 24,178        $ 38,151        2.1    %    4.8    %    5.0    %    6.3    %    8.1    %
        *Key Assumptions:
ratios
    Amazon Inc.
    Financial and Operating Ratios
    December 31, 2017 through 2021
            2017        2018        2019        2020        2021
    Liquidity Ratios
     Current Ratio        1.04        1.10        1.10        1.05        1.14
     Quick Ratio        0.76        0.85        0.86        0.86        0.91
     Working Capital        $ 2,314        $ 6,710        $ 8,522        $ 6,348        $ 19,314
    Activity Ratios
     Receivable Turns        13.51        15.61        14.96        17.02        16.36
     Days in Receivables        27.00        23.40        24.40        21.40        22.30
     Revenues/Working Capital        76.87        34.71        32.92        60.82        24.33
     Revenues/Fixed Assets        3.64        3.77        3.86        3.41        2.93
     Revenues/Total Assets        1.35        1.43        1.25        1.20        1.12
     Inventory Turns        11.08        13.56        13.69        16.22        14.39
     Days in Inventory        32.90        26.90        26.70        22.50        25.40
     Payables Turns        3.23        3.64        3.51        3.22        3.46
     Days in Payables        112.90        100.20        104.00        113.50        105.40
    Coverage/Leverage Ratios
     Fixed Assets/Equity        1.76        1.42        1.17        1.21        1.16
    Profitability Ratios
     Return on Equity        0.1    %    0.3    %    0.2    %    0.3    %    0.3
     Return on Total Assets        0.0    %    0.1    %    0.1    %    0.1    %    0.1
     Net Profit on Revenues        2.1    %    4.8    %    5.0    %    6.3    %    8.1
    N/A - Not applicable
    Change in sales        ERROR:#DIV/0!        ERROR:#REF!    ERROR:#REF!    ERROR:#REF!    ERROR:#REF!    ERROR:#REF!    ERROR:#REF!    -100.00%
prospective analysis
    Amazon Inc.
    Projected Income Statement (In millions)
                        2022        2023        2024        2025        2026        Terminal
    Revenue                    $ 540,300        $ 621,300        $ 714,500        $ 821,700        $ 945,000        $ 1,086,800
        Growth                15.0%        15.0%        15.0%        15.0%        15.0%        15.0%
    Gross profit                    189,105        217,455        250,075        287,595        330,750        380,380
        Percentage of revenue                35.0%        35.0%        35.0%        35.0%        35.0%        35.0%
    Operating expenses                    162,090        186,390        214,350        246,510        283,500        326,040
        Percentage of revenue                30.0%        30.0%        30.0%        30.0%        30.0%        30.0%
    Other income (expense)
        Interest income (expense)                (1,361)        (1,361)        (1,361)        (1,361)        (1,361)        (1,361)
        Other                - 0        - 0        - 0        - 0        - 0        - 0
                        (1,361)        (1,361)        (1,361)        (1,361)        (1,361)        (1,361)
        Percentage of revenue                -0.3%        -0.2%        -0.2%        -0.2%        -0.1%        -0.1%
    Net income                    $ 25,654        $ 29,704        $ 34,364        $ 39,724        $ 45,889        $ 52,979
        *Key Assumptions:
discount rate
    Amazon Inc.
    Development of Discount Rate and Capitalization Rate
            Rate        Note
    Risk-free long term U.S. Government bond rate        2.6    %    (A)
    Equity risk premium        6.0        (B)
    Industry premium estimate        1.5        (C)
    Specific company risk        3.0        (D)
    Cost of equity (Discount rate)        13.1        Sum of (A) - (D)
    Less: Long-term sustainable growth rate        (2.5)        (E)
    Capitalization rate        10.6    %
    (A) Yield on the twenty-year U.S. Treasury bond as of December 31, 20XX, per the U.S. Treasury
    (B) Long-horizon expected return of large stocks over risk free securities, U.S. Equity Risk Premium (6.0%)
    (C) SIC code XX, 1.5%
    (D) Appraiser's judgement concerning company-specific risk
    (E) Estimated long-term growth rate based on inflation, Federal Reserve Bank of Philadelphia
    Sources:
    United States Treasury
    ***You may use other sources to update any of these values; list the applicable source if used. Existing
     values are actual figures obtained from sources used in prior years. You may use these as default
     values since a detailed development of the discount rate is beyond the scope of this class.
dcf
    Amazon Inc.
    Discounted Cash Flow Method (In millions)
                    Projected for Years Ending December 31,
                                                            Terminal
                    2022        2023        2024        2025        2026        Value
    Forecasted Net Income                $ 25,654        $ 29,704        $ 34,364        $ 39,724        $ 45,889        $ 52,979
    Plus:
        Depreciation            11,000        11,550        12,128        12,734        13,371        14,039
    Less:
        Capital expenditures            (1,500)        (1,500)        (1,500)        (1,500)        (1,500)        (1,500)
        Debt reduction            (2,000)        (2,000)        (2,000)        (2,000)        (2,000)        (2,000)
    Net Cash Flow                $ 33,154        $ 37,754        $ 42,992        $ 48,958        $ 55,760        $ 63,518
    Present value of cash flows                $ 29,314        $ 29,515        $ 29,716        $ 29,921        $ 30,131
    Discount rate:        13.1%
    Terminal period cash flows                                                        $ 63,518
    Capitalization rate:        10.6%                                            ÷    10.6%
    Capitalized terminal cash flow                                                        $ 599,227
    Net present value of terminal cash flow, discounted into perpetuity                                                        $ 323,800
    Net present value - five years ending YE: 2026                                        $ 148,600
    Net present value of terminal cash flow                                         323,800
    Total indication of value (rounded)                                        $ 472,400
                    1        2        3        4        5
valuation summary
    Amazon Inc.
    Final Computation of Value
    As of December 31, 2021
                        Income Approach: Discounted Cash Flow Method
    Indicated Value of Equity                    $ 472,400
    Weight                    100    %
    Weighted Value (rounded)                    $ 472,400
    Indicated value with voting rights                    $ 472,400
    Less: DLOC (Discount for Lack of Control)        15.0%            (70,860)
    
    Marketable, minority value                    401,540
    Less: DLOM (Discount for Lack of Marketability)        25.0%            (100,385)
    Nonmarketable, minority value                    $ 301,155
    Value of a one-percent interest (in millions)                    $ 3,012
    *if valuing an interest greater than 50% then the DLOC will not...
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