DERIVED ASSET VALUATION
Any value placed on the Company falls into two areas, firstly the actual net
worth of the company to potential investors and secondly the premium above that
value which an investor may be willing to pay in order to acquire the asset.
Since this section
of the report is designed to show the derived value of the assets and
not any inflated value placed on the Company by share prices or speculators
this section concentrates on tangible values.
Corporate history
is punctuated with the results of the triumph of enthusiasm over experience.
The results of overeager enthusiasm are, of course, long-term failure.
Simple reliance on
historic accounts can be unwise and thus this part of the report will seek to
suggest more realistic valuations.
Essentially the
security of the markets served must also be questioned. Far too many
investments based on a so-called dynamic market position have all too soon been
shown to be illusory.
The premium the
investor is willing to pay above the actual tangible value of the investment is
a political decision which is, more often than not, based on questionable
objective or rational factors.
VALUATION METHODS
There are a number of methods available for the evaluation of the value of the
Company to a potential investor. Some of these methods are based on
simulations, some on hypothetical value and some on perceived values of assets.
This report has
little faith in simulation or hypothetical valuations and thus places most
emphasis on the value of assets. Furthermore the valuation of the assets of the
Company must distinguish between the perceptions of the reported corporate
assets and the actual or realizable value of those assets.
There are four
techniques which might be used in the production of a value for the industry:-
1. Earnings & P/E Ratios
This measure of the
Company asset's value is qualitative by nature and relies on the relationship
between the net profit (after tax, interest, minority interests and certain
dividends) available to common shareholders which is divided by the share price
of the Company.
The events of the
Stock Market crashes of 1987and 2001, and the various accounting scandals which
have occurred in even the most regulated of countries, the uncertainty and un-safeness of the calculation,
and a general belief that this measure of company value is highly suspect and superficial
means that this report will avoid an Earnings P/E related calculation of the
industry value.
2. Current Value
This method of
valuation essentially calculates the expected cash flow of the Company. A
discount rate is applied to the forecasted cash flow and this represents the
after-tax return from the investment.
This model uses a
number of long-term forecasts which place a significant reliance on the markets
serviced by the industry and the products and services supplied. The forecast,
which may be for a period of 7-14 years, relies on a high level of speculation.
The calculation
produces a Net Current Value (NCV) using the following formula:
NCV =
|
C
1+r
|
C2
(1+r2)
|
...
|
Cn
(1+r)n
|
where,
Cn |
= CASH FLOW over years
n |
r |
= DISCOUNT RATE |
n |
= number of YEARS |
Readers can use the market data sections to make the necessary Cash Flow
projections for the industry and thereafter calculate the NCV values.
The Best and Worst
Market Based Turnover Scenarios should be used to analyze the up-side and
down-side possibilities for the industry.
YEAR END |
Previous
|
Previous
|
Last Year
|
Total
Turnover |
$****
|
$****
|
$****
|
Domestic
Turnover |
|
|
|
Export
Turnover |
****%
|
****%
|
****%
|
TRADING
PROFIT |
****%
|
****%
|
****%
|
-
Depreciation |
****%
|
****%
|
****%
|
OPERATING
PROFIT |
****%
|
****%
|
****%
|
-
Interest Paid |
****%
|
****%
|
****%
|
-
Non-Trading Income |
****%
|
****%
|
****%
|
PRE-TAX
PROFIT |
****%
|
****%
|
****%
|
Figures
given as a % of Turnover
This method of defining the value of the industry is not recommended as it
is uncertain and speculative.
3. Net Asset Value
The historic accounts
for the industry shown in this report provide the following data:
YEAR END |
Previous
|
Previous
|
Last Year
|
Fixed Assets |
****%
|
****%
|
****%
|
Intangible Assets |
****%
|
****%
|
****%
|
Intermediate Assets |
****%
|
****%
|
****%
|
TOTAL
FIXED ASSETS |
****%
|
****%
|
****%
|
Stocks / Inventory |
****%
|
****%
|
****%
|
Debtors |
****%
|
****%
|
****%
|
Miscellaneous Assets |
****%
|
****%
|
****%
|
TOTAL
CURRENT ASSETS |
****%
|
****%
|
****%
|
TOTAL
ASSETS |
****%
|
****%
|
****%
|
Creditors |
****%
|
****%
|
****%
|
Short Term Loans |
****%
|
****%
|
****%
|
Miscellaneous Liabilities |
****%
|
****%
|
****%
|
TOTAL
CURRENT LIABILITIES |
****%
|
****%
|
****%
|
NET
ASSETS |
****%
|
****%
|
****%
|
Long Term Loans |
****%
|
****%
|
****%
|
Miscellaneous Long Term Liabilities |
****%
|
****%
|
****%
|
NET
VALUE |
****%
|
****%
|
****%
|
Figures
given as a % of Turnover
Some merchant bankers and accountants suggest that a percentage should be added
to the reported Net (Book) Value.
The percentage increase varies from 10% to
25%.
This report
suggests that, in fact, the prudent investor will take a 10-15% discount and
reduce the Net Value figure by this amount.
The reason for
this is the predilection of companies to inflate certain items in the balance
sheet; for example, debts owed, stock values, intangible and
intermediate assets, property and investments. Thus the safest course is
to discount the Net Value of the firm in order to see the true picture.
Furthermore there is the likelihood that some liabilities and future costs have
been underestimated and this too will tend to devalue the Net Value of the
company.
4. Return on Investment
This calculation uses the measure of Pre-Tax Profit as a
percentage of Net Assets and is, in the opinion of this report, the best method
of evaluating:
YEAR END |
Previous
|
Previous
|
Last Year
|
PRE-TAX
PROFIT |
****%
|
****%
|
****%
|
-
Less, Interest Paid |
****%
|
****%
|
****%
|
-
Divided by, TOTAL ASSETS |
****%
|
****%
|
****%
|
Return on Investment
|
****
|
****
|
****
|
Figures
given as a % of Turnover
DERIVED HISTORIC FINANCIAL DATA
|
Derived Historic Balance Sheet |
|
Previous |
Previous |
Last Year |
|
Total
Sales |
100%
|
$**** |
$**** |
$**** |
|
Domestic
Sales |
%
|
|
|
|
|
Exports
|
%
|
****% |
****% |
****% |
|
Pre-tax
Profit |
%
|
****% |
****% |
****% |
|
Interest
Paid |
%
|
****% |
****% |
****% |
|
Non-trading
Income |
%
|
****% |
****% |
****% |
|
Operating
Profit |
%
|
****% |
****% |
****% |
|
Depreciation:
Structures |
%
|
****% |
****% |
****% |
|
Depreciation:
Plant and Equipment |
%
|
****% |
****% |
****% |
|
Depreciation:
Miscellaneous Items |
%
|
****% |
****% |
****% |
|
Total
Depreciation |
%
|
****% |
****% |
****% |
|
Trading
Profit |
%
|
****% |
****% |
****% |
|
Intangible
Assets |
%
|
****% |
****% |
****% |
|
Intermediate
Assets |
%
|
****% |
****% |
****% |
|
Fixed
Assets: Structures |
%
|
****% |
****% |
****% |
|
Fixed
Assets: Plant and Equipment |
%
|
****% |
****% |
****% |
|
Fixed
Assets: Miscellaneous Items |
%
|
****% |
****% |
****% |
|
Fixed
Assets |
%
|
****% |
****% |
****% |
|
Capital
Expenditure on Structures |
%
|
****% |
****% |
****% |
|
Capital Expenditure
on Plant and Equipment |
%
|
****% |
****% |
****% |
|
Capital
Expenditure on Vehicles |
%
|
****% |
****% |
****% |
|
Capital
Expenditure on Data
Processing Equipment |
%
|
****% |
****% |
****% |
|
Capital
Expenditure on Miscellaneous Items |
%
|
****% |
****% |
****% |
|
Total
Capital Expenditure |
%
|
****% |
****% |
****% |
|
Retirements:
Structures |
%
|
****% |
****% |
****% |
|
Retirements:
Plant and Equipment |
%
|
****% |
****% |
****% |
|
Retirements:
Miscellaneous Items |
%
|
****% |
****% |
****% |
|
Total
Retirements |
%
|
****% |
****% |
****% |
|
Total
Fixed Assets |
%
|
****% |
****% |
****% |
|
Finished
Product Stocks |
%
|
****% |
****% |
****% |
|
Work in
Progress as Stocks |
%
|
****% |
****% |
****% |
|
Materials
as Stocks |
%
|
****% |
****% |
****% |
|
Total
Stocks / Inventory |
%
|
****% |
****% |
****% |
|
Debtors
|
%
|
****% |
****% |
****% |
|
Miscellaneous
Current Assets |
%
|
****% |
****% |
****% |
|
Total
Current Assets |
%
|
****% |
****% |
****% |
|
Total
Assets |
%
|
****% |
****% |
****% |
|
Creditors
|
%
|
****% |
****% |
****% |
|
Short
Term Loans |
%
|
****% |
****% |
****% |
|
Miscellaneous
Current Liabilities |
%
|
****% |
****% |
****% |
|
Total
Current Liabilities |
%
|
****% |
****% |
****% |
|
Net
Assets / Capital Employed |
%
|
****% |
****% |
****% |
|
Shareholders
Funds |
%
|
****% |
****% |
****% |
|
Long Term
Loans |
%
|
****% |
****% |
****% |
|
Miscellaneous
Long Term Liabilities |
%
|
****% |
****% |
****% |
|
Workers
|
Unit
|
|
|
|
|
Hours
Worked |
Unit
|
|
|
|
|
Work in
1st Quarter |
% p.a.
|
****% |
****% |
****% |
|
Work in
2nd Quarter |
% p.a.
|
****% |
****% |
****% |
|
Work in
3rd Quarter |
% p.a.
|
****% |
****% |
****% |
|
Work in
4th Quarter |
% p.a.
|
****% |
****% |
****% |
|
Total Employees
|
Units
|
|
|
|
|
Raw
Materials Cost |
%
|
****% |
****% |
****% |
|
Finished
Materials Cost |
%
|
****% |
****% |
****% |
|
Fuel Cost
|
%
|
****% |
****% |
****% |
|
Electricity
Cost |
%
|
****% |
****% |
****% |
|
Total
Input Supplies / Materials and Energy Costs |
%
|
****% |
****% |
****% |
|
Payroll
Costs |
%
|
****% |
****% |
****% |
|
Wages
|
%
|
****% |
****% |
****% |
|
Directors'
Remunerations |
%
|
****% |
****% |
****% |
|
Employee
Benefits |
%
|
****% |
****% |
****% |
|
Employee
Commissions |
%
|
****% |
****% |
****% |
|
Total
Employees Remunerations |
%
|
****% |
****% |
****% |
|
Sub
Contractors |
%
|
****% |
****% |
****% |
|
Rental
& Leasing: Structures |
%
|
****% |
****% |
****% |
|
Rental
& Leasing: Plant and Equipment |
%
|
****% |
****% |
****% |
|
Total
Rental & Leasing Costs |
%
|
****% |
****% |
****% |
|
Maintenance:
Structures |
%
|
****% |
****% |
****% |
|
Maintenance:
Plant and Equipment |
%
|
****% |
****% |
****% |
|
Total
Maintenance Costs |
%
|
****% |
****% |
****% |
|
Services
Purchased |
%
|
****% |
****% |
****% |
|
Communications
Costs |
%
|
****% |
****% |
****% |
|
Miscellaneous
Expenses |
%
|
****% |
****% |
****% |
|
Sales
Personnel Variable & Commission Costs |
%
|
****% |
****% |
****% |
|
Sales
Expenses and Costs |
%
|
****% |
****% |
****% |
|
Sales
Materials Costs |
%
|
****% |
****% |
****% |
|
Total
Sales Costs |
%
|
****% |
****% |
****% |
|
Distribution
Fixed Costs |
%
|
****% |
****% |
****% |
|
Distribution
Variable Costs |
%
|
****% |
****% |
****% |
|
Warehousing
Fixed Costs |
%
|
****% |
****% |
****% |
|
Warehousing
Variable Costs |
%
|
****% |
****% |
****% |
|
Physical
Handling Fixed Costs |
%
|
****% |
****% |
****% |
|
Physical
Handling Variable Costs |
%
|
****% |
****% |
****% |
|
Physical
Process Fixed Costs |
%
|
****% |
****% |
****% |
|
Physical
Process Variable Costs |
%
|
****% |
****% |
****% |
|
Total
Distribution and Handling Costs |
%
|
****% |
****% |
****% |
|
Mailing
& Correspondence Costs |
%
|
****% |
****% |
****% |
|
Media
Advertising Costs |
%
|
****% |
****% |
****% |
|
Advertising
Materials & Print Costs |
%
|
****% |
****% |
****% |
|
POS &
Display Costs |
%
|
****% |
****% |
****% |
|
Exhibition
& Events Costs |
%
|
****% |
****% |
****% |
|
Total
Advertising Costs |
%
|
****% |
****% |
****% |
|
Product
Returns & Rejection Costs |
%
|
****% |
****% |
****% |
|
Product
Installation & Re-Installation Costs |
%
|
****% |
****% |
****% |
|
Product
Breakdown & Post Installation Costs |
%
|
****% |
****% |
****% |
|
Product
Systems & Configuration Costs |
%
|
****% |
****% |
****% |
|
Product
Service & Maintenance Costs |
%
|
****% |
****% |
****% |
|
Customer
Problem Solving & Complaint Costs |
%
|
****% |
****% |
****% |
|
Total
After-Sales Costs |
%
|
****% |
****% |
****% |
|
Total
Marketing Costs |
%
|
****% |
****% |
****% |
|
New
Technology Expenditure |
%
|
****% |
****% |
****% |
|
New
Production Technology Expenditure |
%
|
****% |
****% |
****% |
|
Total Research
and Development Expenditure |
%
|
****% |
****% |
****% |
|
Total
Operational & Process Costs |
%
|
****% |
****% |
****% |
|
Debtors
within Agreed Terms |
%
|
****% |
****% |
****% |
|
Debtors
Outside Agreed Terms |
%
|
****% |
****% |
****% |
|
Un-recoverable
Debts |
%
|
****% |
****% |
****% |
Figures
given as a % of Turnover
Financial
Definitions
|