Carlton Polish Co.

Résumé du document

There are different ways to calculate a company's value. The first method is to use the balance sheet of the company to estimate the value of a company using the DCF approach. Another method is concerning the competition analysis. By looking at similar companies in the same activity sector ("peer group") we can use their ratios to estimate the value of a company.

So, to be accurate in our valuation, we will use two methods of valuation:
-The Discounted Cash Flow Analysis
-The Financial Ratios Analysis (using multiples)

The second method will be used to confirm our first impression using the DCF Analysis. The Free Cash Flow: "Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt."

Extraits

[...] The valuation using the P/R ratio is using figures used by other company, so the accuracy of these figures is relative. The figures of Economic Laboratory are given for June 1982 so there is a lack of precision for these numbers. For the question, seeing the results we have found, the buyout of 50% shares of the company seems to be justified because the value of 2,500$ (paid by the buyer) is under the half of our valuations for the DCF and the multiples approach Would you finance the buyout if you were the bank? [...]

[...] and admin. Rental expense Executive salaries Depreciation (1-τc) UNI Depreciation Cap ex ΔNWC FCF Actual 1982 / / / / / 42 / / 42 -60 / / Pro forma Pro forma Pro forma Pro forma Pro forma Depreciation: we used the value of the T-1 depreciation and then we add 20% (Linear amortization in 5 years) of T-1 CapEx. CapEx: we used the difference between each year (1982-1981 ; 1983-1982; ) N.B.: For the actual year (1982) we just kept the value used for the pro format computations. [...]

[...] Carlton Polish Co. Table of Contents 1. What is Carlton Polish worth? Introduction DCF Analysis Free Cash Flows Discount Rate Results without leverage Result with the tax shield adjustment Financial Ratios Analysis Conclusion Financial Analysis Entrepreneur Analysis Market Analysis Conclusion Would you finance the buyout if you were the bank? Why or why not? If you were the banker, what terms would you require on the loan? What is Carlton Polish worth? Introduction There are different ways to calculate a company's value. [...]

[...] This position is reinforced by the fact that Carlton has a very good distribution network. The only bad fact is about the competitors, as we see in the case there are 4 majors' competitors which are strongly implemented in the market Conclusion So if we agree on the good situation of Carlton Polish and if we want to agree on the buyout financing we have to set some conditions (terms) required to acquire the loan. These points are developed in the following question If you were the banker, what terms would you require on the loan? [...]

[...] So, another way to evaluate the Carlton Polish value is to use the multiples. We are going to use the P/E ratio to evaluate the company. We can estimate this ratio by looking at the P/E ratio of Economics Laboratory. We can find the P/E ratio for 1983 for EL; using the average P/E ratio in june 1982 (equal to 9.47 ) and make a linear progression until 11.1 in march 1983 we can estimate the value of the P/E ratio in January 1st 1983 as equal to : We can find on the Carlton Polish's pro forma financial data that the profit after tax in 1983 is evaluated at $441,000. [...]