Date of Valuation: Revenue Growth Rate For Next Year 4.00% Operating Margin For Next Year 30.00%
Date of Valuation: Revenue Growth Rate For Next Year 4.00% Operating Margin For Next Year 30.00%
Date of Valuation: Revenue Growth Rate For Next Year 4.00% Operating Margin For Next Year 30.00%
Company name RIL There should be a check against the iteration box. If th
Numbers from your base year below ( in consistent units)
This year Last year
Country of incorporation India
Industry (US) Tobacco
Industry (Global) Tobacco Last 10K Years since last 10K
Revenues $ 48,353.00 $ 43,449.00 1
Operating income or EBIT $ 18,545.00 $ 16,508.00 1
Interest expense $ 74.00 $ 115.00
Book value of equity $ 1,225.86 $ 1,220.43
Book value of debt $ 8.15 $ 11.50
Do you have R&D expenses to capitalize? Yes If you want to capitalize R&D, you have to input the
Do you have operating lease commitments? Yes If you have operating leases, please enter your lease c
Cash and Marketable Securities $ 169.00 $ (166.00)
Cross holdings and other non-operating assets $ - $ -
Minority interests $ - $ -
Number of shares outstanding = 1229.00
Current stock price = $ 180.75
Effective tax rate = 33.00%
Marginal tax rate = 30.00%
The value drivers below:
Revenue growth rate for next year 4.00%
Operating Margin for next year 30.00%
Compounded annual revenue growth rate - years 2-5 = 10.00% Growth Lever
Target pre-tax operating margin (EBIT as % of sales in 30.00% Profitability Lever
Year of convergence 3.00 Speed of convergence level
Sales to capital ratio (for computing reinvestment) = 30.00 Efficency of Growth Lever
Market numbers
Riskfree rate 3.00%
Initial cost of capital = 10.54%
Other inputs
Do you have employee options outstanding? No
Number of options outstanding = 7.72
Average strike price = $1.29
Average maturity = 7.00
Standard deviation on stock price = 45.00%
Default assumptions.
In stable growth, I will assume that your firm will have a cost of capital similar to that of typical mature companies (riskfree rate + 4.5%)
Do you want to override this assumption = No Mature companies generally see their risk levels appr
If yes, enter the cost of capital after year 10 = 7.50% Though some sectors, even in stable growth, may have
I will assume that your firm will earn a return on capital equal to its cost of capital after year 10. I am assuming that whatever competitive
Do you want to override this assumption = Yes Mature companies find it difficult to generate returns
If yes, enter the return on capital you expect after year 1 10% But there are significant exceptions among companies
I will assume that your firm has no chance of failure over the foreseeable future.
Do you want to override this assumption = Yes Many young, growth companies fail, especially if they
If yes, enter the probability of failure = 5% Tough to estimate but a key input.
What do you want to tie your proceeds in failure to? V B: Book value of capital, V= Estimated fair value for
Enter the distress proceeds as percentage of book or fair 50% This can be zero, if the assets will be worth nothing if
I will assume that your effective tax rate will adjust to your marginal tax rate by your terminal year. If you override this assumption, I will l
Do you want to override this assumption = No
I will assume that you have no losses carried forward from prior years ( NOL) coming into the valuation. If you have a money losing compa
Do you want to override this assumption = No Check the financial statements.
If yes, enter the NOL that you are carrying over into yea $250.00 An NOL will shield your income from taxes, even afte
I will asssume that today's risk free rate will prevail in perpetuity. If you override this assumption, I will change the riskfree rate after year 1
Do you want to override this assumption = No If yes, you will be asked to enter a normal risk free ra
If yes, enter the riskfree rate after year 10 2.00% Enter your estimate of what the riskfree rate (in your
I will assume that the growth rate in perpetuity will be equal to the risk free rate. This allows for both valuation consistency and prevents "im
Do you want to override this assumption = No This is an option to let you use a negative growth rate
If yes, enter the growth rate in perpetuity -5.00% This can be negative, if you feel the company will decl
I have assumed that none of the cash is trapped (in foreign countries) and that there is no additional tax liability coming due and that cash is a neutral ass
Do you want to override this assumption No
If yes, enter trapped cash (if taxes) or entire balance (if mistru $140,000.00 Cash that is trapped in foreign markets (and subject to addi
& Average tax rate of the foreign markets where the cash is t 15% Additional tax rate due on trapped cash or discount being a
run this spreadsheet, go into preferences in Excel and check under Calculation options
k against the iteration box. If there is not, you will get circular reasoning errors.
w ( in consistent units)
ze R&D, you have to input the numbers into the R&D worksheet.
ases, please enter your lease commitments in the lease worksheet below and I will convert to debt
Computed numbers: Here is what your company's numbers look like, relative to industry.
If you are not working in US dollars, you should add the inflation differential to the industry averages.
Company Industry (US dat Industry (Global data)
Revenue growth in the most recent year = 11.29% 3.84% 2.58%
Pre-tax operating margin in the most recent year 38.69% 39.34% 31.97%
Sales to capital ratio in most recent year = 32.31 1.55 0.73
Return on invested capital in most recent year= 837.46% 54.11% 19.32%
Standard deviation in stock prices = 38.49% 29.53%
Cost of capital = 8.83% 7.04%
Valuation Output Feedback (for you to use to fine tune your inputs, if you want)
Revenues in year 10, based on your revenue growth = $ 100,441
Pre-tax Operating Income in year 10, based on your operating m $ 30,132
Return on invested capital in year 10, based on your sales/capital 653.16%
Check the Diagnostics worksheet for more details.
mpanies fail, especially if they have trouble raising cash. Many distressed companies fail, because they have trouble making debt payments.
eign markets (and subject to additoinal tax) or cash that is being discounted by the market (because of management mistrust)
trapped cash or discount being applied to cash balance because of mistrust.
making debt payments.
on your own in uncharted territory.
Base year 1 2 3 4 5 6 7
Revenue growth rate 4.00% 10.00% 10.00% 10.00% 10.00% 8.60% 7.20%
Revenues $ 48,353.00 $ 50,287.12 $ 55,315.83 $ 60,847.42 $ 66,932.16 $ 73,625.37 $ 79,957.15 $ 85,714.07
EBIT (Operating) mar 38.69% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%
EBIT (Operating inc $ 18,705.63 $ 15,086.14 $ 16,594.75 $ 18,254.22 $ 20,079.65 $ 22,087.61 $ 23,987.15 $ 25,714.22
Tax rate 33.00% 33.00% 33.00% 33.00% 33.00% 33.00% 32.40% 31.80%
EBIT(1-t) $ 12,532.77 $ 10,107.71 $ 11,118.48 $ 12,230.33 $ 13,453.36 $ 14,798.70 $ 16,215.31 $ 17,537.10
- Reinvestment $ 64.47 $ 167.62 $ 184.39 $ 202.82 $ 223.11 $ 211.06 $ 191.90
FCFF $ 10,043.24 $ 10,950.86 $ 12,045.94 $ 13,250.54 $ 14,575.59 $ 16,004.25 $ 17,345.20
NOL $ - $ - $ - $ - $ - $ - $ - $ -
Implied variables
Sales to capital ratio 30.00 30.00 30.00 30.00 30.00 30.00 30.00
Invested capital $ 1,497 $ 1,561 $ 1,729 $ 1,913 $ 2,116 $ 2,339 $ 2,550 $ 2,742
ROIC 837.46% 647.51% 643.20% 639.32% 635.84% 632.71% 635.89% 639.60%
8 9 10 Terminal year Check these revenues against
5.80% 4.40% 3.00% 3.00% a. Overall market size
$ 90,685.49 $ 94,675.65 $ 97,515.92 $ 100,441.39 b. Largest companies in this market
30.00% 30.00% 30.00% 30.00%
$ 27,205.65 $ 28,402.69 $ 29,254.77 $ 30,132.42 $ 11,426.79 This is is how much your operating income
grew over the ten-year period.
31.20% 30.60% 30.00% 30.00%
$ 18,717.48 $ 19,711.47 $ 20,478.34 $ 21,092.69
$ 165.71 $ 133.01 $ 94.68 $ 6,327.81 $ 7,966.57 This is how much capital you
invested over the ten year period.
$ 18,551.77 $ 19,578.46 $ 20,383.67 $ 14,764.88
$ - $ - $ - $ -
Boeing is in deep trouble. Already exposed to significant pain because of its mishandling of the Boeing 737 Max, wh
revenues to plummet in 2019, the company is facing a mountain of pain with the Corona Virus decimating the airlin
(Boeing's customers). I assume more pain the year to come, with revenues dropping even with the 737 Max return
and increased losses. After that, i assume that there will be higher growth, as airlines start playing catch up and buy
from a duopoly. I assume that margins will revert back to pre-2018 levels over the next 5 years and that during the
Boeing is exposed to a risk of failure, not so much because it will go out of business (it is too big to fail) but from ne
from the government that is large enough to wipe out equity (as was the case with GM in 2009).
The Assumptions
Base year Years 1-5 Years 6-10 After year 10
Revenues (a) $ 48,353 10.00% 3.00% 3.00%
Operating margin ( 38.69% 38.69% 30.00% 30.00%
Tax rate 33.00% 33.00% 30.00% 30.00%
Reinvestment (c ) Sales to capital r30.00 RIR = 30.00%
Return on capital 837.46% Marginal ROIC =643.73% 10.00%
Cost of capital (d) 10.54% 8.00% 8.00%
The Cash Flows
Revenues Operating MargiEBIT EBIT (1-t) Reinvestment
1 $ 50,287 30.00% $ 15,086 $ 10,108 $ 64
2 $ 55,316 30.00% $ 16,595 $ 11,118 $ 168
3 $ 60,847 30.00% $ 18,254 $ 12,230 $ 184
4 $ 66,932 30.00% $ 20,080 $ 13,453 $ 203
5 $ 73,625 30.00% $ 22,088 $ 14,799 $ 223
6 $ 79,957 30.00% $ 23,987 $ 16,215 $ 211
7 $ 85,714 30.00% $ 25,714 $ 17,537 $ 192
8 $ 90,685 30.00% $ 27,206 $ 18,717 $ 166
9 $ 94,676 30.00% $ 28,403 $ 19,711 $ 133
10 $ 97,516 30.00% $ 29,255 $ 20,478 $ 95
Terminal year $ 100,441 30.00% $ 30,132 $ 21,093 $ 6,328
The Value
Terminal value $ 295,298
PV(Terminal value) $ 116,208
PV (CF over next 10 years) $ 87,102
Value of operating assets = $ 203,310
Adjustment for distress $ 5,083 Probability of failure =
- Debt & Mnority Interests $ 117
+ Cash & Other Non-operating assets $ 169
Value of equity $ 198,279
- Value of equity options $ -
Number of shares 1,229.00
Value per share $ 161.33 Stock was trading at =
ng of the Boeing 737 Max, which caused
na Virus decimating the airline business
ven with the 737 Max returning to the fold
tart playing catch up and buy more aircraft Tell your story about the company. Keep it
t 5 years and that during the next year, focuses on the company's businesses and tie it
is too big to fail) but from needing a bailout into the three key levers of value: cash flows,
M in 2009). growth and risk
Link to story
Duopoly, growing market
Industry margins, also close to his
Tie each assumption to the part of your story
that relates to it.
FCFF
$ 10,043
$ 10,951
These are the numbers that come from your
$ 12,046
assumptions. The revenues over time reflect
$ 13,251 your revenue growth, the operating margins
$ 14,576 evolve towards your target margin and your
$ 16,004 tax rate will change, if you have set it to. The
$ 17,345 reinvestment is estimated using the sales to
$ 18,552 capital ratio for the first 10 years and based on
a reinvestment rate in stable growth (g/ ROC).
$ 19,578
$ 20,384
$ 14,765
$180.75
VALUATION DIAGNOSTICS
Invested capital at start of valuation $ 1,496.53
Invested capital at end of valuation $ 3,135.29
Change in invested capital over 10 years $ 1,638.76
Change in EBIT*(1–t) (after-tax operating income) over 10 yea $ 10,549.15
Marginal ROIC over 10 years 643.73%
ROIC at end of valuation 653.16%
Average WACC over the 10 years (compounded) 9.77%
Your calculated value as a percent of current price 89.26%
Pre-Tax After-Tax
Year Beta Cost of Cost of Tax Savings Cost of Debt Ratio Cost of
Equity Debt Debt Capital
1 10.54%
2 10.54%
3 10.54%
4 10.54%
5 10.54%
6 10.03%
7 9.52%
8 9.02%
9 8.51%
10 8.00%
Cumulated
Year Cost of Cost of FCFF Terminal Present
Capital Value Value
Capital
1 10.54% 1.1054 $ 10,043.24 $ 9,085.55
2 10.54% 1.2219 $ 10,950.86 $ 8,961.95
3 10.54% 1.3507 $ 12,045.94 $ 8,918.11
4 10.54% 1.4931 $ 13,250.54 $ 8,874.47
5 10.54% 1.6505 $ 14,575.59 $ 8,831.05
6 10.03% 1.8161 $ 16,004.25 $ 8,812.52
7 9.52% 1.9891 $ 17,345.20 $ 8,720.32
8 9.02% 2.1684 $ 18,551.77 $ 8,555.53
9 8.51% 2.3529 $ 19,578.46 $ 8,321.05
10 8.00% 2.5411 $ 20,383.67 ### ###
Value of operating assets = ###
Valuing Options or Warrants
Enter the current stock price = $ 180.75
Enter the strike price on the option = $ 1.29
Enter the expiration of the option = 7.00
Enter the standard deviation in stock 45.00% (volatility)
Enter the annualized dividend yield o 0.00%
Enter the treasury bond rate = 3.00%
Enter the number of warrants (option 7.72
Enter the number of shares outstandi 1,229.00
d1 = 4.92293376
N (d1) = 0.99999957
d2 = 3.73234567
N (d2) = 0.99990515
Debt
Book Value of Straight Debt = $ 8.15
Interest Expense on Debt = $ 74.00
Average Maturity = 5
Approach for estimating pre-tax cost of debt Actual rating
If direct input, input the pre-tax cost of debt 4.000%
If actual rating, input the rating A1/A+
If synethetic rating, input the type of compan 2
Pre-tax Cost of Debt = 3.98%
Tax Rate = 30%
Preferred Stock
Number of Preferred Shares = 0
Current Market Price per Share= 188.75
Annual Dividend per Share = 5
Output
Estimating Market Value of Straight Debt = $ 336.37
Estimated Value of Straight Debt in Convertible = $ -
Value of Debt in Operating leases = $ 109.16
Estimated Value of Equity in Convertible = $ -
Levered Beta for equity = 0.87
Inputs
Over how many years do you want to amortize R&D expenses 3 ! If in doubt, use the lookup table below
Enter the current year's R&D expense = $ 172.71 The maximum allowed is ten years
Enter R& D expenses for past years: the number of years that you will need to enter will be determined by the amortization period
Do not input numbers in the first column (Year). It will get automatically updated based on the input above.
Year R& D Expenses
-1 146.35 ! Year -1 is the year prior to the current year
-2 156.25 ! Year -2 is the two years prior to the current year
-3 155.35
0
0
0
0
0
0
0
Output
Year R&D Expense Unamortized portion Amortization this year
Current 172.71 1.00 172.71
-1 146.35 0.67 97.57 $ 48.78
-2 156.25 0.33 52.08 $ 52.08
-3 155.35 0.00 0.00 $ 51.78
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
Value of Research Asset = $322.36 $ 152.65
Adjustment to Operating Income = $20.06 ! A positive number indicates an increase in operating income (add to reported EBIT)
Tax Effect of R&D Expensing $6
ents to operating income, net
amortization period
Output
Pre-tax Cost of Debt = 3.98% ! If you do not have a cost of debt, use the synthetic rating estimator
Number of years embedded in yr 6 es 2 ! I use the average lease expense over the first five years
to estimate the number of years of expenses in yr 6
Converting Operating Leases into debt
Year CommitmentPresent Value
1 $ 18.39 $ 17.69
2 $ 18.39 $ 17.01
3 $ 18.39 $ 16.36
4 $ 18.39 $ 15.73
5 $ 18.39 $ 15.13
6 and beyon $ 17.54 $ 27.23 ! Commitment beyond year 6 converted into an annuity for ten years
Debt Value of leases = $ 109.16
Restated Financials
Depreciation on Operating Lease Asset = $ 15.59 ! I use straight line depreciation
Adjustment to Operating Earnings = $140.57 ! Add this amount to pre-tax operating income
Adjustment to Total Debt outstanding = $ 109.16 ! Add this amount to debt
Adjustment to Depreciation = $15.59
Mature Market ERP + 6.25%
If you want to update the spreads listed below, please visit http://www.bondsonline.com
For large manufacturing firms
If interest coverage ratio is
> ≤ to Rating is Spread is
-100000 0.199999 D2/D 15.12%
0.2 0.649999 Caa/CCC 11.34%
0.65 0.799999 Ca2/CC 8.64%
0.8 1.249999 C2/C 8.20%
1.25 1.499999 B3/B- 5.15%
1.5 1.749999 B2/B 4.21%
1.75 1.999999 B1/B+ 3.51%
2 2.2499999 Ba2/BB 2.40%
2.25 2.49999 Ba1/BB+ 2.00%
2.5 2.999999 Baa2/BBB 1.56%
3 4.249999 A3/A- 1.22%
4.25 5.499999 A2/A 1.08%
5.5 6.499999 A1/A+ 0.98%
6.5 8.499999 Aa2/AA 0.78%
8.50 100000 Aaa/AAA 0.63%
$75,872.00
$2,404.00
$24,171.00
$276.00
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