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Financial Model for Firm Valuation Analysis

The document provides information to build a financial model for a company with the following key details: - The company has $50 million in annual sales growing 25% yearly, with 20% EBITDA margins. In year 3 it secures a JV contributing $20 million revenue at 12.5% EBITDA, scaling up to $50 million by year 6. - Capex is 7.5% of sales for normal growth and $4 million for JV expansion in year 3, scaling to 7.5% of JV sales thereafter. The model will use debt and retained earnings to fund growth. - Additional financial details are provided to calculate taxes, interest, depreciation in the

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m.karthik
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52 views1 page

Financial Model for Firm Valuation Analysis

The document provides information to build a financial model for a company with the following key details: - The company has $50 million in annual sales growing 25% yearly, with 20% EBITDA margins. In year 3 it secures a JV contributing $20 million revenue at 12.5% EBITDA, scaling up to $50 million by year 6. - Capex is 7.5% of sales for normal growth and $4 million for JV expansion in year 3, scaling to 7.5% of JV sales thereafter. The model will use debt and retained earnings to fund growth. - Additional financial details are provided to calculate taxes, interest, depreciation in the

Uploaded by

m.karthik
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Build A Financial Model

An company has sales of $50 million growing at 25% YoY with EBITDA margins at 20%. It secures a
JV in Year 3 with additional business of $20 million at EBITDA of 12.5% which linearly scales up to
$50 million in Year 6 (linear scaling implies Revenue Yr-3=20, Yr-4=30).

Capex required for normal growth of the firm is 7.5% of sales and Capex required for expansion at
time of JV is $4 million (after JV year capex for JV revenue will be 7.5% of JV sales). The model should
use debt, retained earnings to grow the firm.

The current debt ratio of the firm is 2:1 with average cash conversion cycle of 90 days and payment
terms with debtor and creditors at 60 days.

New Capex should be done at current debt equity ratio. For current year inventory = 6mn,
receivables = 8 mn, payables = 5 mn and retained earning = 9mn, Fixed Asset, Net & Gross = 15mn
and Cash = 3mn. Tax rate for the company is 30%, Depreciation rate is 10%, Interest Expense Rate is
10% (depreciation and interest to be calculated on average of current and previous year) and
Interest Income Rate is 5%(interst income on beginning of period cash).

Value the firm using both methods DCF and Relative. For DCF Valuation assume weights of equity
and debt based on current book value. Risk free return in the economy is 7%, market risk premium is
7% and Beta of comparable company is 0.5. Company goes in maturity stage from year 7 onwards
with growth at 5% forever. For relative valuation use P/E as valuation metric. What would be the
value of the firm in year 6 at PE of 15 ? What is the value of the firm today at 1 year forward PE 10 ?

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