Truth Behind Valuation

Comparable Companies Analysis of GM

Why we choose

this topic?

Why we choose this topic?

• Goal of Corporate Finance• Maximize Corporate Value While

Managing the firm's financial risks

Interested in the Present Tense

What is the value of one specific company How to do valuation professionally

After strenuously Gooooogling

Methodologies of Valuation

• Comparable companies analysis• Precedent transactions analysis• Discounted cash flow analysis

Comparable Companies Analysis

• Primary methodology • Given focus company, division business,

or collection of assets

• Broad range of applications, • M&A situations, IPOs, restructurings, and

investment decisions.

Comparable Companies Analysis

• Premise• Pros and Cons

Comparable Companies Analysis

• Premise• Pros and Cons

Premise

• Similar companies provide a highly reference point

• share key business and financial characteristics, performance drivers and risks.

Comparable Companies Analysis

• Premise• Pros and Cons

Comparable Companies Analysis

• Assumptions• Pros and Cons

Pros and Cons

Pros

• Market-based• Relativity• Quick and convenient• Current

Cons

• Market-based• Periods of irrational exuberance or

bearishness

• Absence of relevant comparables

• Potential disconnect from cash flow

• Company-specific issues

Target??

Valuation Steps

• Step 1 -Select the universe of Comparable Companies

• Step 2 -Locate the necessary financial information

• Step 3 –Spread Key Statistics, Ratios, and Trading multiples

• Step 4 –Benchmark the Comparable Companies

& Determine Valuation

Valuation Steps

• Step 1 -Select the universe of Comparable Companies

• Step 2 -Locate the necessary financial information

• Step 3 –Spread Key Statistics, Ratios, and Trading multiples

• Step 4 –Benchmark the Comparable Companies

& Determine Valuation

Selecting…

Valuation Steps

• Step 1 -Select the universe of Comparable Companies

• Step 2 -Locate the necessary financial information

• Step 3 –Spread Key Statistics, Ratios, and Trading multiples

• Step 4 –Benchmark the Comparable Companies

& Determine Valuation

Source of Data

• SEC filings• Consensus research estimates• Equity research reports• Press releases• Financial information services

• Source:• http://yahoo.brand.edgar-online.com/DisplayFiling.aspx?dcn=0001193125-11-130473• http://www.moodys.com/credit-ratings/General-Motors-Corporation-Old-credit-rating-316500• http://www.standardandpoors.com/prot/ratings/entity-ratings/en/us/?entityID=1169842&sectorCode=

CORP

Valuation Steps

• Step 1 -Select the universe of Comparable Companies

• Step 2 -Locate the necessary financial information

• Step 3 –Spread Key Statistics, Ratios, and Trading multiples

• Step 4 –Benchmark the Comparable Companies

& Determine Valuation

Financial profile• Size (sales, gross profit, EBITDA, EBIT, and net

income)• Profitability (gross profit, EBITDA, EBIT, and net

income margins)• Growth Profile (historical and estimated growth

rates)• Return on Investment (ROIC, ROE, ROA, and

dividend yield)• Credit Profile (leverage ratios, coverage ratios,

and credit ratings)

Valuation Steps

• Step 1 -Select the universe of Comparable Companies

• Step 2 -Locate the necessary financial information

• Step 3 –Spread Key Statistics, Ratios, and Trading multiples

• Step 4 –Benchmark the Comparable Companies

& Determine Valuation

PresentTense

After Deliberations…We’ve decided to Choose

Market Valuation

Enterprise Value(All in billions)0

50

100

150

200

250

26.58

236.84

68.98

133.69

N/A

GMToyotaHondaFordTATA

Data collected from recent) 10-K

and consensus report

LTM Financial Statistics

Company Sales Cross profit EBITDA EBIT Net

Income

GM 135592 16648 13725 6639 6172

Ford 128954 24503 26886 7149 6561

Toyota 202814 24263 18616 3477 2242

TATA 20631.8 18474.7 2882 2065.9 837.1

Honda 91815 2316.4 10111 3732 2872

All in millions

Data collected from recent 10-K(Annual Report)

Sales and Cross Profit

GM Ford Toyota tata HMC Median Mean

0

50000

100000

150000

200000

250000

Sales (million dollars)

Sales and Cross Profit

GM Ford Toyota tata HMC Median Mean

0

5000

10000

15000

20000

25000

Cross profit(in millions)

EBITDA EBIT Net Income0

5000

10000

15000

20000

25000

30000

All in millions

GM Ford Toyota TATA HMC Mean Median

EBIDA, EBIT and Net Income

LTM Profitability Margins

Company Cross profit EBITDA EBIT Net Income

GM 12.28% 10.12% 4.90% 4.55%

Ford 19.00% 20.85% 5.54% 5.09%

Toyota 11.96% 9.18% 1.71% 1.11%

TATA 89.54% 13.97% 10.01% 4.06%

Honda 25.23% 11.01% 4.06% 3.13%

Data collected from recent 10-K(Annual Report)

LTM Profitability Margins

EBITDA EBIT Net Income0%

5%

10%

15%

20%

25%

GMFordToyotaTATAHonda

Growth Rates

Company Sales(His )

Sales(Est )

EBITDA(His)

EBITDA(Est)

GM NA 29.76% NA -89.03%

Ford -20.50% 10.90% NA NA

Toyota -20.17% -2.42% -48.73% -8.46%

TATA 44.80% 56.10% -172.02% -7.06%

Honda -16.39% -9.42% -77.50% 210.91%

Data collected from recent 10-K(Annual Report)

Return on Investment

Company ROIC(%) ROE(%) ROA(%)

GM 15.68% 17.06% 5.83%

Ford 12.90% 13.42% 3.87%

Toyota 3.07% 2.02% 0.71%

TATA 67.33% 37.51% 5.59%

Honda 15.68% 17.06% 5.83%

Data collected from recent 10-K(Annual Report)

Return on Investment

ROIC(%) ROE(%) ROA(%)0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

GMFordToyotaTATAHonda

Data collected from recent 10-K(Annual Report)

GM is Here!

LTM Leverage Ratio

Company Debt/Tot. Cap. Debt/EBITDA

Net Debt/EBITDA

GM 0.23 0.78 (0.84)

Ford N/A 3.87 3.32

Toyota 0.56 7.52 6.45

TATA 0.81 3.27 2.78

Honda 0.49 4.37 3.18

Data collected from recent 10-K(Annual Report)

LTM Coverage Ratios

Company EBITDA/Int.Exp. EBIT/Int.Exp

GM 12.50 6.05

Ford NA NA

Toyota 52.00 9.71

TATA 3.20 2.30

Honda 75.46 27.85

Data collected from recent 10-K(Annual Report)

Credit Rating

GM Toyota Honda TATA Ford

S&P BB- AA+ A-1 BB- B+

Moody’s Baa2 / A1 B2 Baa2

Determine Valuation

• Companies in Auto sector tend to trade on the basis of forward EV/EBITDA multiples

• Choose the closest comparables

• Implied Valuation=

Multiple Range* Metric (which is EBITDA)

Trading Multiple

Company GM Toyota Honda TATA Ford

EV/EBITDA 2.15x 11.58x 4.89x N/A 9.08x

GM’s Implied Valuation isEBITDA Metric Multiple

RangeImplied Enterprise Value

LTM $13725 2.15x-4.89x 29508.75-67115.25

All in millions

Compared With

GM’s Implied Valuation isEBITDA Metric Multiple

RangeImplied Enterprise Vale

LTM $13725 2.15x-4.89x 29508.75-67115.25

Enterprise Value From Yahoo! Finance is25.74B

All in millions

Conclusion ?

• Interpretation of financials

• Application of Trading multiples

Group Members

• Jiali Zhang• Zhiyang Jia• Wenjiao Gu• Shen Li

Thanks For

Your Attention!