Valuation Analyst

What this skill does

# Valuation Analyst

Expert valuation agent that determines fair value of companies and assets using multiple methodologies. Specializes in DCF analysis, comparable company analysis, precedent transactions, and asset-based valuation. Provides comprehensive valuation for investment decisions, M&A, and strategic planning.

This skill applies rigorous valuation frameworks used by investment banks, private equity firms, and corporate finance professionals. Perfect for startup valuations, M&A analysis, investment decisions, and fairness opinions.

## Core Workflows

### Workflow 1: Discounted Cash Flow (DCF) Valuation

**Objective:** Value company based on projected future cash flows

**Steps:**
1. **Financial Projections (5-10 years)**
   - **Revenue Projections:**
     - Historical growth analysis
     - Market size and share
     - Segment-level forecasts
     - Growth rate deceleration

   - **Profitability Projections:**
     - Gross margin trends
     - Operating margin expansion
     - SG&A leverage
     - Target margins at maturity

   - **Capital Requirements:**
     - CapEx as % of revenue
     - Working capital changes
     - D&A schedule

2. **Free Cash Flow Calculation**
   ```
   EBIT (Earnings Before Interest & Taxes)
   - Taxes (EBIT × Tax Rate)
   = NOPAT (Net Operating Profit After Tax)
   + Depreciation & Amortization
   - Capital Expenditures
   - Change in Working Capital
   = Unlevered Free Cash Flow (UFCF)
   ```

3. **Discount Rate (WACC)**
   - **Cost of Equity (CAPM):**
     ```
     Ke = Rf + β × (Rm - Rf)

     Where:
     Rf = Risk-free rate (10-year Treasury)
     β = Levered beta
     Rm - Rf = Equity risk premium (5-7%)

     For private companies, add size premium (2-6%)
     ```

   - **Cost of Debt:**
     ```
     Kd = Interest Rate × (1 - Tax Rate)
     ```

   - **WACC Calculation:**
     ```
     WACC = (E/V × Ke) + (D/V × Kd)

     E = Market value of equity
     D = Market value of debt
     V = E + D
     ```

4. **Terminal Value**
   - **Perpetuity Growth Method:**
     ```
     TV = FCF(final year) × (1 + g) / (WACC - g)

     g = Terminal growth rate (typically 2-3%)
     ```

   - **Exit Multiple Method:**
     ```
     TV = EBITDA(final year) × Exit Multiple

     Exit multiple based on comparables
     ```

5. **Enterprise Value Calculation**
   ```
   Enterprise Value = Σ(FCF / (1 + WACC)^t) + TV / (1 + WACC)^n

   t = year number
   n = final projection year
   ```

6. **Equity Value Bridge**
   ```
   Enterprise Value
   - Total Debt
   - Preferred Stock
   - Minority Interest
   + Cash & Equivalents
   + Non-operating Assets
   = Equity Value

   Per Share Value = Equity Value / Diluted Shares
   ```

7. **Sensitivity Analysis**
   - WACC vs Terminal Growth matrix
   - Revenue growth sensitivity
   - Margin sensitivity
   - Multiple sensitivity

**Deliverable:** DCF valuation with sensitivity tables

### Workflow 2: Comparable Company Analysis

**Objective:** Value company using trading multiples of similar public companies

**Steps:**
1. **Select Comparable Companies**
   - Same industry/sector
   - Similar business model
   - Comparable size (revenue, market cap)
   - Similar growth profile
   - Geographic relevance
   - Minimum 5-7 comps preferred

2. **Gather Market Data**
   - Stock price (current)
   - Shares outstanding (diluted)
   - Market capitalization
   - Total debt
   - Cash and equivalents
   - Minority interest

3. **Calculate Enterprise Value**
   ```
   Market Cap = Share Price × Diluted Shares

   Enterprise Value = Market Cap + Debt - Cash + Minority Interest
   ```

4. **Gather Financial Metrics**
   - LTM (Last Twelve Months):
     - Revenue
     - EBITDA
     - EBIT
     - Net Income
     - EPS

   - NTM (Next Twelve Months) estimates:
     - Revenue
     - EBITDA
     - EPS

5. **Calculate Trading Multiples**
   | Multiple | Formula | When to Use |
   |----------|---------|-------------|
   | EV/Revenue | EV / Revenue | High growth, negative EBITDA |
   | EV/EBITDA | EV / EBITDA | Most common, capital intensive |
   | EV/EBIT | EV / EBIT | D&A differs materially |
   | P/E | Price / EPS | Mature, profitable |
   | P/B | Price / Book | Financial institutions |
   | PEG | P/E / Growth | Growth-adjusted comparison |

6. **Analyze and Select Multiples**
   - Calculate mean, median, range
   - Identify outliers
   - Consider premium/discount factors
   - Select appropriate multiple range

7. **Apply to Target Company**
   ```
   Enterprise Value = Target Metric × Selected Multiple

   Example:
   Target EBITDA = $50M
   Median EV/EBITDA = 12.0x
   Implied EV = $600M
   ```

8. **Valuation Range**
   - Low (25th percentile multiple)
   - Mid (median multiple)
   - High (75th percentile multiple)

**Deliverable:** Comparable company analysis with valuation range

### Workflow 3: Precedent Transaction Analysis

**Objective:** Value company using M&A transaction multiples

**Steps:**
1. **Identify Relevant Transactions**
   - Same industry
   - Similar deal size
   - Recent (last 3-5 years)
   - Similar deal structure
   - Minimum 5-7 transactions

2. **Gather Transaction Details**
   - Announcement date
   - Acquirer and target
   - Deal value
   - Deal structure (stock/cash)
   - Strategic vs financial buyer
   - Control premium paid

3. **Calculate Transaction Multiples**
   - EV/Revenue at time of deal
   - EV/EBITDA at time of deal
   - EV/EBIT at time of deal
   - Premium to trading price

4. **Adjust for Context**
   - Market conditions at time of deal
   - Synergy expectations
   - Competitive bidding situation
   - Distressed vs strategic deals

5. **Apply to Target**
   ```
   Transaction EV = Target Metric × Transaction Multiple
   ```

6. **Consider Control Premium**
   - Typical premium: 20-40% over trading
   - Adjust for minority vs control stakes
   - Strategic vs financial buyers

**Deliverable:** Precedent transaction analysis with implied value range

### Workflow 4: Startup/Private Company Valuation

**Objective:** Value early-stage or private company

**Steps:**
1. **Valuation Method Selection**

   | Stage | Primary Methods |
   |-------|-----------------|
   | Pre-revenue | Scorecard, Berkus, Risk Factor |
   | Early revenue | Revenue multiples, DCF (if possible) |
   | Growth stage | Revenue multiples, DCF |
   | Late stage | DCF, comps, precedent transactions |

2. **Revenue Multiple Approach**
   - **Select Comparable Multiples:**
     - Public SaaS: 5-15x revenue
     - Marketplace: 1-5x GMV, 5-15x revenue
     - E-commerce: 0.5-2x revenue

   - **Apply Discount:**
     - Illiquidity discount: 20-35%
     - Size discount: 10-30%
     - Stage discount: varies

   - **Calculation:**
     ```
     Value = Revenue × Multiple × (1 - Discounts)
     ```

3. **Venture Capital Method**
   ```
   Exit Value = Projected Revenue × Exit Multiple
   Pre-money Value = Exit Value / Target Return

   Example:
   Year 5 Revenue = $100M
   Exit Multiple = 6x
   Exit Value = $600M
   Target Return = 10x
   Current Value = $60M
   ```

4. **Scorecard Method (Pre-revenue)**
   - Average pre-money for stage/region
   - Score on factors (±50%):
     - Team strength
     - Market opportunity
     - Product/technology
     - Competitive environment
     - Partnerships
     - Need for financing
   - Multiply base by weighted factors

5. **Cap Table Implications**
   - Pre-money vs post-money
   - Dilution calculation
   - Option pool sizing
   - Liquidation preferences

**Deliverable:** Private company valuation with methodology explanation

### Workflow 5: Sum-of-the-Parts (SOTP) Valuation

**Objective:** Value multi-segment company by valuing each segment separately

**Steps:**
1. **Segment Identification**
   - Business segments from filings
   - Geographic segments
   - Product line segments
   - Operational vs non-operating assets

2. **Segment Financial Separation**
   - Segment revenue
   - Segment EBITDA
   - Segment assets
   - Corporate overhead allocation

3. **Segment Valua