Required Inputs
- Subject Company: Name, industry, and brief description of the business.
- Purpose of Valuation: M&A, fairness opinion, strategic planning, litigation, tax, or fundraising.
- Financial Data: Revenue, EBITDA, net income, total assets, debt, and cash (trailing twelve months + projections if available).
- Standard of Value: Fair market value, fair value, investment value, or liquidation value.
- Control vs. Minority: Whether the interest being valued is a controlling stake or minority position.
Execution Steps
1. Preliminary Analysis
Assess the company before selecting methods:
| Factor | Assessment | Impact on Methodology |
|---|---|---|
| Profitability | Profitable / Pre-profit / Distressed | Pre-profit: weight revenue multiples; Distressed: weight asset-based |
| Growth stage | Early / Growth / Mature / Decline | Early: weight DCF with scenario analysis; Mature: weight comps |
| Asset intensity | Asset-light / Asset-heavy | Asset-heavy: include asset-based approach |
| Comparable availability | Strong peer set / Weak peer set | Weak: increase DCF weight, reduce comps weight |
| Transaction context | Control acquisition / Minority investment | Control: include precedent transactions + control premium |
2. DCF Valuation (Intrinsic Value)
2a. WACC Derivation
Calculate the weighted average cost of capital:
| Component | Formula | Source |
|---|---|---|
| Cost of equity (Ke) | Risk-free rate + Beta x Equity risk premium + Size premium + Company-specific premium | CAPM model |
| Risk-free rate | 10-year or 20-year government bond yield | Treasury data |
| Equity risk premium | Historical market return minus risk-free rate (typically 5-7%) | Damodaran / Duff & Phelps |
| Beta | Unlevered peer beta, re-levered for target capital structure | Regression or peer-derived |
| Size premium | Small-cap premium if applicable (1-5%) | Duff & Phelps / Kroll |
| Cost of debt (Kd) | Yield on comparable-rated debt x (1 - tax rate) | Market or synthetic rating |
| WACC | Ke x (E / (D+E)) + Kd x (D / (D+E)) | Target capital structure weights |
State every assumption explicitly. Document risk-free rate date, ERP source, beta peers, and size premium category.
2b. Free Cash Flow Projection
Project unlevered free cash flow (UFCF) for the explicit forecast period (typically 5-10 years):
UFCF = EBIT x (1 - Tax Rate) + D&A - CapEx - Change in Net Working Capital
Use the financial-modeling skill for detailed three-statement model construction when building projections from scratch.
2c. Terminal Value (Two Methods)
Perpetuity Growth Method:
TV = UFCFn+1 / (WACC - g)
Where g = long-term sustainable growth rate (typically 2-3%, must not exceed nominal GDP growth).
Exit Multiple Method:
TV = EBITDAn x Exit Multiple
Where the exit multiple is derived from current trading multiples of mature peers.
Sanity check: Both methods should produce terminal values within 20% of each other. If not, re-examine assumptions. Terminal value typically represents 60-80% of total enterprise value for growth companies.
2d. DCF Summary
| Item | Value | Notes |
|---|---|---|
| PV of projected FCFs | $___M | Sum of discounted UFCFs |
| PV of terminal value | $___M | Discounted TV |
| Enterprise value (DCF) | $___M | Sum of above |
| Terminal value as % of EV | ___% | Flag if >85% |
Produce a sensitivity table on WACC (rows) x Terminal growth rate (columns) with at least 5x5 grid, centered on the base case.
3. Comparable Companies Analysis (Market Value)
3a. Peer Selection
Select 6-12 comparable public companies based on:
- Same or adjacent industry (SIC/NAICS codes)
- Similar size (revenue within 0.5x-2.0x if possible)
- Similar growth profile and margin structure
- Same geographic exposure
Document why each peer was included or excluded.
3b. Trading Multiples
| Peer | EV/Revenue | EV/EBITDA | EV/EBIT | P/E | EV/FCF |
|---|---|---|---|---|---|
| Peer 1 | |||||
| Peer 2 | |||||
| ... | |||||
| Mean | |||||
| Median | |||||
| 25th percentile | |||||
| 75th percentile |
Apply the most relevant multiples to the subject company's metrics. Use LTM and NTM metrics where available.
3c. Comps-Implied Valuation
| Multiple Applied | Subject Metric | Multiple Range (25th-75th) | Implied EV Range |
|---|---|---|---|
| EV/Revenue | $___M revenue | ___x - ___x | $___M - $___M |
| EV/EBITDA | $___M EBITDA | ___x - ___x | $___M - $___M |
4. Precedent Transactions Analysis (Deal Value)
4a. Transaction Selection
Identify 5-10 comparable M&A transactions from the last 3-5 years. Prioritize:
- Same industry and sub-sector
- Similar target size
- Similar deal rationale (strategic vs. financial buyer)
- Comparable market conditions at time of deal
4b. Transaction Multiples
| Transaction | Date | Target | Acquirer | EV ($M) | EV/Revenue | EV/EBITDA |
|---|---|---|---|---|---|---|
| Deal 1 | ||||||
| Deal 2 | ||||||
| ... | ||||||
| Median |
Note: Precedent transaction multiples inherently include a control premium paid by acquirers.
5. Asset-Based Valuation (Liquidation / Floor Value)
Use when the company is asset-heavy, in distress, or as a floor valuation.
| Asset Category | Book Value | Fair Market Value Adjustment | FMV |
|---|---|---|---|
| Cash and equivalents | 100% of book | ||
| Accounts receivable | 80-95% of book (net of doubtful) | ||
| Inventory | 50-90% of book (depends on type) | ||
| PP&E | Appraisal-based or 40-80% of book | ||
| Intangibles (identifiable) | Separate IP valuation if material | ||
| Real estate | Appraisal value | ||
| Total adjusted assets | |||
| Less: Total liabilities | At face value + contingent liabilities | ||
| Net asset value |
6. Valuation Bridge: Enterprise Value to Equity Value
Regardless of methodology, bridge from EV to equity value:
| Item | Value | Notes |
|---|---|---|
| Enterprise value | $___M | From selected methodology |
| Less: Total debt | ($___M) | All interest-bearing obligations |
| Less: Minority interests | ($___M) | If consolidated |
| Less: Preferred equity | ($___M) | At liquidation preference |
| Less: Unfunded pension | ($___M) | If applicable |
| Less: Contingent liabilities | ($___M) | Litigation, earnouts owed |
| Plus: Cash and equivalents | $___M | Unrestricted cash |
| Plus: Non-operating assets | $___M | Excess real estate, investments |
| Equity value | $___M | |
| Diluted shares outstanding | ___M | Treasury stock method for options/warrants |
| Equity value per share | $___ |
7. Control Premium / Minority Discount
| Adjustment | Typical Range | When to Apply |
|---|---|---|
| Control premium | 20-40% over trading price | Valuing a controlling interest using public comps (which reflect minority prices) |
| Minority discount | 15-30% from control value | Valuing a minority stake from a control-level valuation |
| Marketability discount (DLOM) | 15-35% | Valuing illiquid/private shares with no public market |
Apply adjustments only once and document the basis. Never double-count (e.g., precedent transactions already include control premiums).
8. Football Field Summary (Range by Method)
Produce a text-based range chart showing the valuation range from each methodology:
Valuation Range Summary ($M)
Low Mid High
DCF |=====[=========]=========|
$XXX $XXX $XXX
Comparable Cos. |======[=======]====|
$XXX $XXX $XXX
Precedent Txns |====[========]============|
$XXX $XXX $XXX
Asset-Based |==|
$XX $XX
Selected Range |====[====]====|
$XXX $XXX $XXX
9. Conclusion and Selected Value
State the concluded valuation range and point estimate:
- Weight assigned to each methodology with rationale
- Selected enterprise value range (low / mid / high)
- Selected equity value range
- Key assumptions that most influence the result
- Sensitivity to the top 2-3 variables
Output Template
## Valuation Analysis: [Company Name]
**Date**: [Date] | **Purpose**: [Purpose] | **Standard of Value**: [Standard]
### Executive Summary
[Company] is valued at an enterprise value of $[X]M to $[Y]M, with a midpoint
of $[Z]M, based on a weighted analysis of [methods used]. The equity value
range is $[A]M to $[B]M ($[C] to $[D] per share on [N]M diluted shares).
### WACC Derivation
| Component | Value | Source |
|---|---|---|
| Risk-free rate | X.X% | [source and date] |
| Equity risk premium | X.X% | [source] |
| Beta (re-levered) | X.XX | [peer set] |
| Size premium | X.X% | [category] |
| Cost of equity | X.X% | CAPM |
| Pre-tax cost of debt | X.X% | [basis] |
| Tax rate | X.X% | [statutory / effective] |
| Debt / total capital | X.X% | [target structure] |
| **WACC** | **X.X%** | |
### DCF Valuation
[Projected UFCF table, terminal value calculation, sensitivity table]
### Comparable Companies
[Peer table with multiples, implied valuation ranges]
### Precedent Transactions
[Transaction table with multiples, implied valuation ranges]
### Asset-Based Valuation
[Adjusted net asset value table — include only if applicable]
### Valuation Bridge
| Item | Value |
|---|---|
| Enterprise value (midpoint) | $___M |
| Less: Net debt | ($___M) |
| Less: Other EV adjustments | ($___M) |
| **Equity value** | **$___M** |
| Per share (diluted) | $___ |
### Football Field
[Text-based range chart showing all methods]
### Methodology Weighting
| Method | Weight | Rationale |
|---|---|---|
| DCF | X% | [why] |
| Comparable companies | X% | [why] |
| Precedent transactions | X% | [why] |
| Asset-based | X% | [why] |
### Key Sensitivities
[WACC x Growth sensitivity table]
[Multiple sensitivity table]
### Risks and Caveats
- [Key risk 1 and its impact on valuation]
- [Key risk 2 and its impact on valuation]
Quality Checks
- At least two independent valuation methodologies applied and cross-referenced.
- WACC derivation fully documented with every input sourced and dated.
- Terminal value sanity-checked: perpetuity growth method and exit multiple method are within 20% of each other.
- Terminal value as percentage of total EV calculated and flagged if >85%.
- Valuation bridge from enterprise value to equity value explicitly shown with every line item.
- Control premium or minority discount applied exactly once (never double-counted with precedent transaction premiums).
- DLOM applied only to private/illiquid interests, not to publicly traded shares.
- Sensitivity analysis covers at least WACC and terminal value assumptions in a grid format.
- Football field chart shows the range from every method used, plus the selected range.
- Every peer in the comparable companies set has a stated inclusion rationale.
- Concluded value range is explicitly stated with methodology weights and rationale.
- Cross-reference:
financial-modelingskill used or referenced for underlying projection model construction.