ACC 345 Business Valuation Report TemplateSummary Business Valuation Report ofCompany ABC,...

Question

ACC 345 Business Valuation Report Template
Summary Business Valuation Report of
Company ABC, Inc.
Company ABC, Inc.
Report Date, 20XX
Contents
INTRODUCTION    3
Nature, Background, and History    4
Facilities    4
Customers    4
Management    4
Competition    4
Strengths and Weaknesses    4
Ownership    4
Major Shareholder Transactions    4
Business Risks    4
FINANCIAL ANALYSIS    5
Financial Analysis Overview    5
Balance Sheets    5
Assets    5
Liabilities    5
Stockholder’s Equity    6
Income Statements    6
Normalization Adjustments    6
ECONOMIC OUTLOOK    7
Industry Analysis    7
Industry Overview    7
Competitive Landscape    7
Products, Operations and Technology    7
Sales and Marketing    7
Finance and Regulation    7
Regional and International Issues    7
Labor Trends    7
General Economic Analysis    7
Interest rates    7
GDP    7
International and Domestic Trade Policy    7
Monetary Policy    7
Fiscal Policy    7
BUSINESS VALUATION    8
Valuation Approaches    8
Asset Approach    8
Income Approach    8
Market Approaches    8
Selected Method - Income Approach    8
Prospective Analysis    8
Discount rate    9
Valuation calculation    10
DISCOUNTS AND PREMIUMS    11
Discount for Lack of Control    11
Discount for Lack of Marketability    11
FINAL CALCULATION OF VALUE    12
SOURCES    13
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 a
oad. 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 Transfe
ed
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:
Cu
ent 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
20142015201620172018 XXXXXXXXXX
Cu
ent Assets
Cash-$ -$ -$ -$ -$ - %- %- %- %- %
Accounts receivable, net- - - - - - - - - -
Inventory- - - - - - - - - -
Other cu
ent assets- - - - - - - - - -
Total cu
ent assets- - - - - - - - - -
Property, plant & equipment- - - - - - - - -

acc-345-business-valuation-report-template-1-ass2-qzg3cl5b.docx acc-345-milestone-two-guidelines-and-rubric-rxxtqlrz.pdf acc-345-business-valuation-model-ass2-orxlfedh.xlsx

Nitish Lath · Accepted Answer

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,

ACC 345 Business Valuation Report Template Summary Business Valuation Report of Company ABC, Inc. Company ABC, Inc. Report Date, 20XX Contents INTRODUCTION 3 Nature, Background, and History 4...

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