Valuation Methodologies OverviewAdvantages and DisadvantagesComparable Company Trading AnalysisDescription• Compare a company's current trading level to those of its competitors• Determine specifically how the market has valued earnings , cash flow, net asset value, assets or other characteristics of similar companies. Compare these ratios to the Company's performance and/or use them to impute an aggregate market value of the CompanyAdvantages• Market efficiency means that trading values ​​in theory should reflect industry trends, business risk, market growth , etc.• The values ​​obtained can be a reliable indicator of the value of the Company for a minority investment (i.e. a non-controlling investment)• Useful technique for assessing vulnerability: when the gap between fundamental value and market value is large, the vulnerability may be highDisadvantages• Always compare apples to oranges. Truly comparable companies are rare, and differences are difficult to explain • Thinly traded, small-cap, or poorly followed stocks may not reflect fundamental value • Many people believe the stock market is “emotional” and sometimes fluctuates erratically. irrational (i.e., the market may be wrong)• The current high level of M&A activity in some sectors has introduced distortions into relative price benchmarksComments• The unaffected level of trading does not include a control premium or synergy value associated with strategic acquisitions • Explaining value gaps between the Company and its comparables may involve extensive use of judgment Comparable Transactions and Premium Analysis Description • Determine the value offered in past acquisitions of similar companies • Specifically, determine the price of past transactions compared al...... paper industry group... , but can generally be classified as follows: Equity value multiples: cash flows to shareholders only (e.g., net profit, book value, operating cash flow ) Common ratios: P/E, P/BV, P/OCF (after tax) Enterprise value multiples: Cash flows to all investors (e.g., revenue, EBIT, EBITDA) Common ratios: FV /revenues, FV/EBIT, FV/EBITDA• JP Morgan typically uses median values; average values ​​are often distorted by external data and therefore more likely to be misleading• Keep backup file in comparable trading presentation page in Lotus/Excel spreadsheet for easy updates/corrections Show file location or l Lotus/Excel output: = cell (“file name”) Price linking in Excel: = IDD (“ticker”, “close”, 0)• Provide summaries of recent financial data and key operational reports as backup• Check all data with the source material (10K, 10Q) to explain the trading anomalies