Comparable Analysis
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Transcript of Comparable Analysis
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§orCode=
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
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Sales (million dollars)
Sales and Cross Profit
GM Ford Toyota tata HMC Median Mean
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Cross profit(in millions)
EBITDA EBIT Net Income0
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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!