Calculation ev. How to calculate the fair value of a company using the DCF model. Pros and cons of the indicator

/ EBITDA is partly analogous to another P/E multiplier, as it is used for the same purpose - to estimate the duration of the return on investment. The calculation formula is already included in the name of the multiplier.

The advantage of /EBITDA over P/E is that the value of the multiplier does not depend on the capital structure of the company. EBITDA has less volatility compared to net income, therefore it allows you to more accurately evaluate the money generated by the company. For example, if a company conducts an additional issue of securities, then this automatically reduces the amount of earnings per share (EPS). And since EPS is the denominator of the P / E indicator, its decrease increases the value of the indicator, artificially inflating the company's attractiveness. The /EBITDA value in case of an additional issue remains unchanged.

Another advantage of the multiplier is that its value is not affected by the level of profitability of the company, therefore it is used for companies regardless of:

level of debt. The amount of interest on liabilities is not taken into account in EBITDA, but directly affects the net income per share. The lack of debt capital is a minus for the company, but at the same time, the debt load artificially adjusts the P / E ratio;
depreciation principle. Each company invests part of the profits in the renewal of fixed assets. But one company can write off depreciation for the year, the other - evenly over the period. With the same profit indicators, the P/E multiplier will be different, /EBITDA will be the same.

The disadvantage of the multiplier is the complexity of its calculation due to different accounting standards and approaches. Therefore, P / E is used for superficial evaluation and comparison. For the analysis of capital-intensive industries, where calculations can be significantly affected by depreciation charges, it is better to use EV / EBITDA.

There is no normative multiplier value - the smaller the ratio, the better. The indicator is compared across industries. If the multiplier is less than the industry average, the company can be considered undervalued. True, this is where the problem arises: where to find the industry average value of the indicator? If the EBITDA value can be found on the websites of many companies, and EV is calculated manually, then statistics on the sectoral value of indices, if any, cannot be called accurate. There is only one way out - to independently calculate the indicators of several companies in the same industry (the number of companies in the sample is at the discretion of the investor) and compare them with each other.

Conclusion. The EV/EBITDA indicator shows how long the money generated by the company, from which depreciation, taxes and liability payments are not deducted, is able to recoup investors' investments. The indicator is considered in dynamics and analyzed together with profitability indicators, financial stability and debt load.

OIL AND GAS BANKING FINANCE METALLURGY MINING CHEMISTRY E/GENERATION POWER GRID ENERGY RETAIL CONSUMPTION TELECOM HIGH TECH MEDIA TRANSPORT CONSTRUCTION ENGINEERING THIRD TIER NON-PUBLIC OTHER Financials Utilities Consumer Discretionary Consumer Staples Energy Real Estates Industrials Technology

Select the Net operating income option. percent income Fee and commission income Securities income Revenue EBITDA Net profit n/a Net profit Net interest margin FCF Dividend payout Dividend Div income, AO Dividend up Div income, ap EPS FCF/share FCF yield Cost of Oper. expenses Creation of reserves Write-off. bad loans CAPEX R&D Personnel expenses Interest expenses Personnel Net assets Non-material assets Goodwill Assets Capital Loan portfolio Loans to legal entities Loans to individuals Deposits Deposits to legal entities Deposits of individuals Impairment reserves Non-performing loans Debt Cash Net debt Amount of fixed capital Amount. total capital NPL NPL Loan-to-deposit ratio Share price ao Number of shares ao Share price an Number of shares a Free Float Insider ownership Oil production Oil refining Gas production Gas export Gas price for export Steel production Production steel sales Share of export sales Capacity utilization Pipe sales volume Slab cost Met/prod price Number of stores New stores opened Total. area of stores Average ticket Passenger traffic total Passenger traffic internal Passenger traffic m / nar Occupancy of passenger seats Cargo turnover Hours of flight Number of aircraft Act. ARPU subscribers Installed capacity Installed temp. power Electricity generation Avg. selling price of electricity Electricity supply to consumers from the network Heat supply Sales of capacity Transmission line length Transformer capacity CIUM Ore processing Diamond mining Diamond sales Diamond content Coking coal mining Domestic coal price Export coal price coal Sales Coal sales Average price of coal Nickel mining Copper mining Gold mining Average selling price of gold Cost of gold Platinum mining Palladium mining Contracts for sale m Contracts for sale RUB Real estate sales New areas for sale Share of mortgage transactions Average price per square meter Production of cars Sales of cars Share Market Sales Auto Exports Aluminum Production Aluminum Sales PDS Sales Aluminum Price Aluminum Costs Capacity Utilization Capitalization EV Bank Profitability Balance Sheet Cost BV/Share Profit EBITDA Net Profit P/BP/E ROE ROA P/SP/BV EV/EBITDA Debt/EBITDA Price/Capacity Dividends/profit Revenue/person CAPEX/Revenue Expenses/person/year Productivity R&D/CAPEX

What do these various financial indicators, which are so abundant in analytical reports, mean? various companies- P/E, EV/EBITBA. These are the so-called financial indicators and multipliers, and this article will be about them.

Financial multiples ( financial ratios) - indicators on the basis of which companies (issuers) are assessed. Financial multiples are fundamental analysis tools and are mainly aimed at determining the fair intrinsic value (target) of a company by comparing with peers (companies from the same industry or sector).

This type of analysis (it is called comparative) is currently gaining more and more popularity. And now it is actively used not only by professional analysts, but also by ordinary investors. Nevertheless, despite this, few of them are fully aware of what financial ratios are. How and how they are calculated.

All financial indicators reflecting the financial and economic activities of the company are usually divided into four groups: solvency, financial stability, business activity and profitability.

Indicators solvency allow assessing the ability to pay monetary obligations.

Indicators financial stability partly resemble indicators of solvency. However, unlike the latter, indicators of financial stability, as a rule, demonstrate the level of borrowed capital and the ability to service this debt (in particular, the level of accounts payable).

Indicators business activity reflect how effectively the company's funds are used in the implementation of financial activities.

Indicators profitability- allow to evaluate the economic efficiency and profitability of the enterprise. These indicators also include the profitability indicator (for example, net profitability or the indicator of the rate of internal profitability, the so-called IRR).

Among the most important financial indicators, or indicators of the first level stand out - market capitalization, total asset value, company value, revenue, net profit, cash flow.

Capitalization(Market Capitalization) - an indicator that reflects the market value of the company. It is calculated as the number of outstanding shares (common and preferred) multiplied by their market price.

Total Asset Value(Total assets) - a financial indicator that reflects the total value of all assets owned by the company.

Company value(Enterprise Value) - financial indicator, calculated as market value company plus company debt less company cash and cash equivalents.

Revenue(Revenue, sales) - a financial indicator that reflects the amount of funds received from the sale of goods and services for a certain period of time.

Net profit(Net profit, earnings) - a financial indicator that reflects the company's revenue minus cost and minus income tax.

Cash flow(Cash flow) - a financial indicator that reflects the positive or negative difference between the amounts of cash receipts and payments by the company for a certain period of time. In some cases, the concept of free cash flow(Free, Net Cash Flow) - this is that part of the cash flow, which is a surplus of cash. That is, this is money that does not belong to the category of circulating and can be used for various prices that are not directly related to economic activity companies (for example, can be directed to dividend payments).

Financial indicators of the second level are derived from the indicators of the first level. Among the most commonly used, it should be noted - profitability indicators: the company's profit before taxes, interest and depreciation, operating and pre-tax profit.

Earnings before taxes, interest on loans and depreciation(Earnings Before Interest & Taxes, Amortization and Depreciation) - a financial indicator, along with the indicator of profit and the value of assets, the EBITBA indicator is most often used when calculating financial multipliers that allow you to assess the company's profitability.

Profit before taxes and interest on the loan(Earnings Before Interest & Taxes, EBIT) - a financial indicator that reflects the company's profit before taxes and interest on loans.

Profit before taxes EBT(Earnings Before Taxes) - a financial indicator reflecting the pre-tax or gross profit of the enterprise. In contrast to the EBITDA indicator, EBT is not a net indicator, but a gross one.

Based on these, as well as other financial indicators, financial multipliers are calculated, which allow the company to be evaluated based on comparison with peers.

At the same time, there is also a certain gradation among financial multipliers. Some indicators are universal (for example, P / S or ROS), i.e. they can be used in the valuation of all companies from all industries. While others are special and are used only for certain sectors and companies.

In this case, we will focus on the most commonly used ones.

P/E - (Price per share/Earning per share) - ratio of capitalization to annual net income. This multiplier roughly reflects how many years it will take for a company at its current annual net profit to pay for itself. Under normal conditions, the larger the multiple, the less interesting the company is in terms of investment. However, in this case there are exceptions: for example, dynamically developing start-ups with a ratio of 20x or more. At the same time, it should be noted that the P/E multiplier in most cases is calculated using another coefficient - EPS.

EPS (Earning per share) - the ratio of income per share, calculated as the ratio of the company's annual net profit (minus dividends on preferred shares) to the average number of outstanding shares.

IN Russian conditions, when most companies do not pay dividends on ordinary shares, it is the ratio of capitalization to sales volume that is more applicable than the P/E multiple.

P/S (Price per share/Sales per share) - ratio of capitalization to annual revenue (sales volume). It is universal in nature.

P/CF (Price per share/ Cash Flow) is the ratio of capitalization to cash flow. This multiplier, as well as P/S being universal, reflects how much of the cash flow generated by the company is accounted for by net income.

EV / EBITDA (Enterprise Value / Earnings Before Interest & Taxes, Amortization and Depreciation) - the ratio of the company's value to profit before taxes, interest on loans and depreciation. The multiplier most objectively reflects the value of the object of assessment (company). When using the EV/EBITDA multiplier, it is advisable to take into account: the value of the tax rate, depreciation, the cost of borrowed capital, and the expected growth in EBITDA. The coefficient is used to evaluate any enterprises, including those with different amounts of long-term liabilities, as it ignores differences in taxation of profits when accruing interest on long-term liabilities.

EV/EBIT (Enterprise Value/ Earnings Before Interest & Taxes) is the ratio of the company's value to operating profit. This multiplier can be used with limited information about peer companies, when revenue, profit before taxes, or additionally one of the most important physical parameters or other known indicators are known for the subject of assessment and peers.

EV/S (Enterprise Value/Sales) is the ratio of the company's value to sales volume. Calculated and used similarly to EV/EBIT. This multiplier is universal. An exception to its use is the case when the company is at the initial stage of development, that is, at the stage of product development, and, accordingly, has no sales proceeds. In addition, this multiplier is the least affected by random factors. Sales revenue is the indicator on which information is easiest to find.

ROA (Return on Assets) - return on assets ratio. It is calculated as the ratio of net profit to the total value of the company's assets. This coefficient makes it possible to estimate the economic efficiency(profitability) of assets at the disposal of the company.

ROE (Return on Earning) - profitability ratio share capital. It is calculated as the ratio of net profit to the total value of the company's assets. This ratio allows you to assess what is the economic efficiency (profitability) of the company's share capital. In other words, to what extent the investments of shareholders (those who own shares) pay off.

ROS (Return on Sales) - sales profitability ratio. It is calculated as the ratio of net profit to revenue. In fact, this is an indicator of net profitability, which makes it possible to judge how effective a company is from an economic point of view.

Sincerely, Young Analyst

The market approach makes it possible to carry out a relative valuation of shares among themselves and to identify the most undervalued among them. Evaluation criteria are divided into qualitative and quantitative. Qualitative assessment criteria include the value of the issuer's credit rating, industry affiliation of the company, the level of financial leverage, stock market liquidity, issuer transparency, dividend policy, etc.

TO quantitative estimates refers to various market measures or stock ratios, such as: EPS, P/E, P/S, EV/S, P/CF, EV/EBITDA, EV/Production, EV/Production, EV/Reserves, and others.

Let's stop only on some of them.

P/E

This indicator, which allows you to correlate earnings per share with the current market price, is called "earnings multiple". P/E is the number of years it will take for a company to recoup its share price (assuming future profits remain unchanged).

P/E - multiple of profit;

Ps - share price;

EPS is earnings per share.

The interpretation of P/E is ambiguous. On the one hand, a high P/E value indicates the optimistic mood of investors, and on the other hand, the company's shares are overvalued. The most important thing to pay attention to when analyzing the P/E ratio is that P/E can only be compared for companies operating in the same industry with a similar structure. financial flows, as well as with a similar scale of activity. And if the P / E ratio is lower than that of other companies, then in this case we can talk about undervalued shares. In the history of the stock market, individual companies have had P/E values of 200 or more.

Since many companies tend to distort the value of net income, sometimes it is more correct to compare not the P / E indicator, but the P / S indicator (or “revenue multiple”). It is calculated similarly to the P / E ratio, only the denominator is not the amount of profit, but the value of revenue. The interpretation of P/S is similar to P/E.

Company Value (EV)

Shows how much the company is worth taking into account debts, i.e. capitalization + net debt (loans + issued bonds). This indicator is compared with other campaigns.

EBITDA

Shows the company's earnings before interest, taxes and depreciation. Historical (quarterly) growth of this indicator affects the increase in the share price in the future.

EV/EBITDA

This ratio is obtained by dividing the company's value by EBITDA. It shows the share of the company's value in EBITDA, or, in other words, how much investors are willing to pay for $1 EBITDA. This indicator is compared with similar companies in the industry: if it is lower than others, we can talk about undervalued shares.

EV/Production

It is calculated as the value of the company divided by the volume of its production. Shows how much investors are willing to pay for the production of one unit of output. A ton, barrel, kWh, number of subscribers, lines, etc. can serve as a unit of production. This indicator is compared with similar campaigns in the industry: if it is lower than others, we can talk about undervalued shares.

EV/Reserves

By dividing the company's value by its reserves, we obtain a coefficient showing how much investors are willing to pay per unit of reserves. A ton, a barrel, installed capacity, explored reserves of mineral resources, etc. can be used as a unit of reserves. This indicator is compared with similar campaigns in the industry: if it is lower than others, we can talk about undervalued shares.

Dividend return ratio (D/P) or dividend yield.

It is defined as the amount of expected dividends per share for the year divided by the current value of the share and multiplied by one hundred percent. The benchmark score is compared to others: the higher the score, the more attractive the stock may be to invest in.

beta coefficient

This ratio measures the elasticity of a percentage change in a stock's price relative to a simultaneous percentage change in the market (or index). Beta is calculated as follows:

beta coefficient;
i-th covariance security and market index;
variance of the index value for the analyzed period.

If a stock's beta value is greater than one, it means that an n percent increase or decrease in the market (index) will cause the stock's price to rise or fall by more than n percent. Conversely, if the beta of a stock is in the range from 0 to 1, then this means that when the market (index) rises or falls, the price of the stock rises or falls by less than n percent. Negative beta values are very rare, that is, the value of the stock changes in the opposite direction to the general market change.

Beta is popular among portfolio investors. It is used in determining the size of the shares of assets in the portfolio. For example, the following approach is used: the higher the ratio of a stock, the smaller the share of this stock in the portfolio.

The meaning of the market approach is to compare the market coefficients of the shares of companies among themselves, to identify the most undervalued or promising shares.

In order to correctly compare the shares of companies with each other and determine the most undervalued of them, the comparison must be carried out in the same industry and preferably on the same type, similar companies.

Consider the most popular P/E ratio. Table 9 shows market multiples for companies in the oil and gas sector of emerging and developed countries.

Table 9. Market performance for shares of companies in the oil and gas sector

The data in the table is somewhat outdated, but it does not matter for studying the P / E ratio.

Line 1 calculates average coefficients for developed markets (America, Europe), line 9 - average coefficients for emerging markets, and line 13 - average coefficients for Russia.

P/E ratio. shows how much investors are willing to pay for $1 of the company's profit. The higher the earnings per share, the lower the ratio.

As can be seen from the table, in 2003, companies from developed countries (line 1) had a P/E value of 13.69, and Russian companies-analogues only 5.83 (line 13).

A coefficient of 5.83 means that the value of Russian shares is 5.83 times greater than the annual profit on these shares. A coefficient of 13.69 means that the share price of companies from developed countries is 13.69 times the annual profit on these shares. As you can see, the P/E ratio of Russian companies is 2.35 times lower than that of companies from developed countries. It's good? Of course, it's good. It follows that Russian stocks are much cheaper than stocks of companies in developed countries. That is, Russian shares have the potential for growth in market value. The given values of P/E ratios correspond to the end of 2004, and by the autumn of 2006 they were already very close to the values of the ratios of developed countries. This indicates that the potential for growth in the value of shares in oil and gas companies is very small.

But that doesn't mean you should rush into buying Russian stocks with low P/E ratios. Their undervaluation compared to the shares of companies from developed countries is associated with the risks that an investor who buys Russian shares bears. Judging by the value of the P/E ratios, the risks of buying Russian shares are significantly greater than the risks of buying shares of companies from developed countries.

But as you know, risk and return are directly related. The greater the risk, the greater the potential return. The lower the risk, the lower the potential return. Therefore, the P / E ratio can be considered the risk of investing in this company, industry or country.

Among Russian companies, the P/E ratio for 2003 varies from a minimum of 4.91 for Surgutneftegaz shares to a maximum of 7.03 for Sibneft shares. That is, the risks of investing in Surgutneftegaz shares are greater than in Sibneft shares, but at the same time, the potential profitability of Surgutneftegaz shares may be greater than that of Sibneft shares.

How to choose stocks for investment?

If the P/E ratio is believed to have already included investment risks, then the decision to buy or not to buy a particular stock depends on how much risk you are willing to take. If you want to get the maximum profit that you can get on Russian market stocks, then buy stocks with the lowest P/E ratio. It should be remembered that potential losses can also be maximum. If you don't want to risk capital and small profits suit you, then buy stocks with high P/E ratios. Other ratios (P/S, EV/EBITDA, EV/Production volumes, EV/Stocks) and others can be used similarly.

In addition, you should be aware that by buying obscure stocks with low odds and hoping to get high profit you have to learn to wait. It takes time to grow profits. This usually takes 1 to 3 years, but sometimes you have to wait longer (3-7 years).

Choose from the above 2-3 coefficients that you consider the most important and try to compare the shares of Russian companies with their help. Each coefficient carries certain information. Understanding the meaning of the coefficients, the ability to compare them will open the way for you to successfully invest in stocks.

All of the above can only be general recommendations. For a more serious study of this important topic one should refer to the literature on portfolio investment and portfolio modeling.

The weakness of the market approach lies in the fact that it is mainly focused on the current, or rather on the past performance of the company. And therefore, it practically does not take into account the future prospects of the company.

In addition to comparing the market performance of stocks, it is very useful to study, compare future prospects and possible risks companies, but more on that in the next article.

The ratio of a company's value (EV) to its earnings before taxes, interest and depreciation (EBITDA) is commonly referred to as the EV to EBITDA multiplier (or ratio). The essence of this multiplier is very close to another coefficient that reflects financial position companies - P / E. Both show the investor how long it will take to pay off their investment in the shares of the company in question.

This multiplier is calculated by simply dividing the value of the company by its EBITDA:

How the components of the formula are calculated is written here:

See below a real example of calculating the EV to EBITDA ratio for Lukoil.

What is the advantage of this multiplier compared to the P/E ratio? Let's list them:

The EV to EBITDA multiple, unlike the P/E ratio, is not affected by changes in the company's capital structure. For example, in the case of an additional issue of shares, the EPS ratio (showing earnings per share) will decrease and, accordingly, the P/E ratio will increase. But the EV/EBITDA ratio will remain unchanged.
Due to the fact that the multiplier we are considering ultimately represents an irrelevant value, it can be very successfully used to compare companies with different levels profitability, usage levels borrowed money, depreciation levels.

This multiplier should be used only in combination with other indicators of the company's activity (coefficients of financial stability, solvency and profitability). Also, it makes sense to consider its values only in dynamics (you should not rely on a single value calculated for only one time period).

Although in itself (without comparison with other ratios) it does not represent any analytical significance, but in comparison with similar ratios of other companies (for the purpose of an objective analysis of those belonging to the same industry with the analyzed one), it can act as one of the indicators of undervalued shares . So, if the EV / EBITDA of the company in question is lower than that of other enterprises belonging to the same industry (or field of activity), then this is evidence of an undervaluation of its shares.

An example of calculating the EV/EBITDA multiplier

Let's calculate this indicator using the example of Lukoil. To do this, take the reporting data for the second quarter of 2018. Consolidated financial statements companies for this time period can be found on the official website of the company at: http://www.lukoil.ru/FileSystem/9/287011.pdf

First, let's calculate the first component of the multiplier - the value of the company (EV). To do this, we need the following initial data:

Market capitalization of the company (the total value of all shares issued by it);
A company's net debt, consisting of its short-term and long-term debt less cash and cash equivalents.

The value of the quantity market capitalization Lukoil can be viewed on the Moscow Exchange website (https://www.moex.com/a4377).

We look for the rest of the data in the company's financial report, a link to which is given above in the text.

Calculate the company's net debt. To do this, we sum up the values of long-term and short-term debt obligations, and then subtract from the resulting result cash owned by the company:

963,517,000,000 + 798,096,000,000-339,209,000,000 = 1,422,404,000,000 rubles

Now we calculate the value of the company, which is nothing more than the sum of its market capitalization and net debt:

EV = 3,663,375,939,285 + 1,422,404,000,000 = 5,085,779,939,285 rubles

Profit before tax;
Depreciation and amortization;
interest paid;
Interest received.

The calculation will be carried out according to the formula:

EBITDA = Profit before tax + Depreciation and amortization + Interest paid - Interest received

We take profit before tax from the income statement for the period under review (the second quarter of 2018).

Data on depreciation and interest (paid and received) are taken from the cash flow statement.

EBITDA = 211,863,000,000 + 185,283,000,000 + 19,343,000,000 – 5,355,000,000 = 411,134,000,000

And after that, we calculate the EV/EBITDA ratio itself:

5 085 779 939 285 / 411 134 000 000 = 12.37

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