Evaluation of action

The financial Analyze has several methods to evaluate a company and its actions.

Most current rest on the Actualisation

of the awaited incomes future (Dividende S, Bénéfice S, Capacité of self-financing according to the methods)
and of an end value to the resale,
by using a Rate up-dating including a Allowance for risk

In certain cases, when the company is in way to be begun again, or on the contrary will cease its activities, one evaluates also the active elements and of liability of the Bilan.

If the action is with dimensions in purse, its value is of course the Cours of purse. One can however evaluate a potential course by using

the fundamental economic ones (future incomes…) indicated higher,
a financial coefficient (for example PER) theoretical,
the taking into account of the psychosociological elements such as the stock exchange profile of the action, the tendencies of market and Percolation S, etc, of the fields from now on very largely studied (Neuroéconomie, Socioéconomie…)

Methods evaluation

For the actions, the financial evaluation initially consists in determining the value of a company. Three families of methods are used:

1 patrimonial approach based on the accounting value of the assessment of the company (a company which has 100 million Euros of equities is evaluated to 100 million Euros). It is a very artificial approach since the accounting value does not reflect the economic value.

2 the approach by the multiples is based on comparison criterions.

the multiple stock-brokers : - one selects a group of comparable companies (even sector, equivalent position of market, etc) - one determines multiple stock-brokers for those of these companies which are quoted on the stock exchange. The most used multiples are

P/E (price/earnings ratio, i.e market cap/net result),
the P/B (price to book, i.e market cap/equities),
Valeur of company (= market cap + value of market of the debt)/Turnover,
Valeur of company/EBITDA or EBIT.

- one applies, with the company which one seeks to evaluate, these multiples calculated for comparable companies. For example, if the company not - dimensioned has incomes of 100 million Euros and is very comparable with a company with dimensions which has VE/Revenues of 2x, then the method of the multiple stock-brokers tends to say that has is worth 200 million Euros.

It will be noted however whom an action not - dimensioned does not have the same liquidity for the carrier that a quoted share and in addition cannot make the object of tender offer or APERTURE. That made that one will apply a certain rebate to this estimate. An index from now on is published the valorizations applied to the companies of intermediate size (http://www.argos-soditic.fr/fichiers/communiques/Indice_Argos_Epsilon.pdf).

multiples of transaction : Approach similar to the multiple stock-brokers, with this close the multiples are given starting from transactions observed on the market. For example, if the company has incomes of 100 million Euros and is very comparable with a company which has incomes of 150 million Euros which was sold little of time before to 300 million Euros, then the method of the multiples of transaction tends to say that has is worth 200 million Euros (100 X (300/150)).

3 Actualization of monetary flows (DCF: Discounted Cash-Flows) This approach consists in determining future monetary flows and bringing up to date them at the rate of the cost of the capital.

Concerning the intrinsic profitability of the company, it acts of the cash-flows (gross margins of self-financing) free released by its exploitation.
Concerning extrinsic profitability, in other words that for the shareholder, it acts of the awaited dividends and possibly of the value of resale hoped at the end of the detention.

- Determination of future monetary flows For that one builds a financial model which gives forecasts on a more or less remote future. Then, if the intrinsic method is used, one calculates for each future year the associated cash-flows:

Trading income (1-Rate of imposition)

+ Depreciation & Depreciation

- Capex (Capital Expenditure, i.e productive investment)

- Variation of the BFR (Requirement in Working capital)

= Cash-Flows free

- Determination of the cost of the capital The most used method is that of the WACC (Weighted Average Cost off Capital, or Balanced Average costs of the Capital)

WACC = Kd X (1 - Tax rate) X (D/D+MV) + Ke X (MV/D+MV) with Kd = Cost of the debt (annual interest rate paid on the debt) Ke = Cost of Equities (cf below for its calculation) D = Value of market of the debt (generally the accounting value) MV = Value of market of Equities (Market cap)

Ke = RF + Beta (rm - RF) + Premium with RF = rate without risk (generally the rate of the government bonds at 20 years) rm-RF = allowance for risk of market Beta = beta of the company Precede = premium related on the country or the liquidity

- Déterminaion of the final value One often uses the formula of Gordon Shapiro on the recurring cash-flow of the company (that observed after many years)

TV = recurring Cash-flow/(Cost of the capital - growth on the long run)

- Déterminaion of the value of the company From the preceding elements, one obtains:

EV = Somme of 1 to N (Cash-flow of year N/cost of the capital) + Final Value

See too

evaluation of company.
the www.thauvron.com site is dedicated to the evaluation of company and makes it possible to download free worksheets Excel, already pre-filled.

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