Calculation of 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 multiple, 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 multiplier value does not depend on the company's capital structure. EBITDA has less volatility compared to net profit, therefore it allows a more accurate assessment of the money generated by the company. For example, if a company carries out 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, a decrease in it increases the indicator's value, artificially raising the company's attractiveness. The value of / EBITDA in case of additional issue remains unchanged.

Another advantage of the multiplier is that its value is not affected by the level of the company's profitability, therefore it is applied to companies regardless of:

  • the level of debt burden. Interest on liabilities is not accounted for in EBITDA, but directly affects net income per share. Lack of debt capital is a minus for the company, but at the same time, the debt load artificially adjusts the P / E ratio;
  • the principle of depreciation. 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 for the period. With the same indicators of profit, the P / E multiple will be different, / EBITDA the same.

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

There is no standard value for the multiplier - the lower the ratio, the better. The indicator is compared across industries. If the multiple is less than the industry average, the company may 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 the statistics on the sectoral value of the indices, even if they are kept, 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 at the investor's discretion) and compare them with each other.

Conclusion... The EV / EBITDA indicator shows how long it takes for the money generated by the company, from which depreciation, taxes and liability payments are not deducted, to recoup an investor's investment. The indicator is viewed in dynamics and analyzed together with indicators of profitability, financial stability and debt burden.

OIL & GAS BANKS FINANCE METALLURGY MINING CHEMICALS E / GENERATION POWER NETWORK POWER SUPPLY RETAIL TELECOM CONSUMPTION HIGH TECH MEDIA TRANSPORTATION CONSTRUCTIONS CONSTRUCTIONS MATERIALS MATERIALS MATERIALS MATERIALS MATERIALS MATERIALS MATERIALS MATERIALS MINE INDUSTRIES UTSHELO

Select the option Net operating income Net. percent income Fee and commission income Securities income Revenue EBITDA Net profit n / a Net profit Net interest margin FCF Div.payment Dividend Div income, JSC Dividend up Div income, up EPS FCF / share FCF profitability Cost of oper. expenses Creation of reserves Write-off. bad loans CAPEX R&D Personnel expenses Interest expenses Personnel Net assets Nemater. Assets Goodwill Assets Capital Loan portfolio Loans to legal entities Loans to individuals Deposits Deposits of legal entities Deposits of individuals Provisions for impairment Non-performing loans Debt Cash Net debt Sufficient fixed capital Amount. total capital Overdue loans, NPL Risk cost Loan-to-deposit ratio Share price of ao Number of shares of ao Share price ap Number of shares up Free Float Insider ownership Oil production Oil refining Gas production Gas export Gas price for export Steel production Production production Steel sales Share of export sales Capacity utilization Pipes sales volume Slab prime cost Met / prod price Number of stores New stores opened Total area of \u200b\u200bshops Average bill Passenger traffic in total Passenger traffic in internal Passenger traffic in passenger cars Passenger seat occupancy Freight turnover Hours of flight Number of aircraft Act. ARPU subscribers Installed capacity Inst. warm power Power generation Avg. electricity sales price Electricity supply to consumers from the grid Heat energy supply Capacity sales Power transmission line length Transformer capacity KIUM Ore processing Diamond mining Diamond content Diamond content Coking coal production Domestic price of coal Export price of coal of coal Sales of coal Average price of coal Nickel production Copper production Gold production Average price of gold sales Cost of gold Production of platinum Production of palladium Contracts for the sale of m Contracts for the sale of rubles Real estate sales New areas for sale Share of mortgage transactions Average price per square meter Car production Auto sales Share market Auto sales export Aluminum production Aluminum sales VPS sales Aluminum price Aluminum cost Capacity utilization Capitalization EV Bank profitability Balance BV value / share EBITDA profit net profit P / BP / E ROE ROA P / SP / BV EV / EBITDA debt / EBITDA Price / capacity Dividends / profit Revenue / person CAPEX / Revenue Costs / person / year Labor productivity R & D / CAPEX

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

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

This type of analysis (it is called comparative) is currently gaining popularity. Moreover, at present, it is actively used not only by professional analysts, but also by ordinary investors. Nevertheless, despite this, few of them fully understand what financial ratios are. As well as 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 you to assess the ability to pay monetary obligations.

Indicators financial sustainability in part resemble the indicators of solvency. However, in contrast to the latter, financial stability indicators, 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 carrying out financial activities.

Indicators profitability - allow you to assess the economic efficiency and profitability of the enterprise. Among these indicators is the indicator of profitability (for example, net profitability or indicator of the rate of internal return, the so-called IRR).

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

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

Total asset value (Total assets) is a financial indicator that reflects the total value of all assets owned by the company.

Company value (Enterprise Value) - a financial indicator calculated as market value the company plus the company's debt less the company's 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) is a financial indicator reflecting the positive or negative difference between the amount of receipts and payments of funds by the company for a certain period of time. In some cases, the concept of free cash flow (Free, Net Cash Flow) is that part of the cash flow that represents the surplus of cash. That is, this is money that does not belong to the category of circulating money and can be used for various prices that are not directly related to economic activities companies (for example, can be directed to dividend payments).

Financial indicators of the second level are derivatives of indicators of the first level. Among the most frequently used are the indicators of profitability: the company's profit before taxes, interest and depreciation deductions, operating and pre-tax profit.

Profit before taxes, interest on loans and depreciation deductions (Earnings Before Interest & Taxes, Amortization and Depreciation) - a financial indicator, along with an indicator of profit and cost of assets, EBITBA is most often used in calculating financial multiples that allow us to assess a company's profitability.

Profit before taxes and interest on the loan (Earnings Before Interest & Taxes, EBIT) is a financial indicator reflecting 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 company. In contrast, EBITDA EBT is not net, but gross.

Based on these, as well as other financial indicators, financial multipliers are calculated, which make it possible to evaluate the company based on comparison with peers.

Moreover, 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 to evaluate 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) - the ratio of capitalization to annual net profit. This multiplier conventionally reflects how many years the company will need at the current annual net profit to pay for itself. Under normal conditions, the larger the multiple, the less interesting the company is in terms of investments. However, in this case, there are exceptions: for example, dynamically developing start-ups in which the ratio can be 20x and higher. It should be noted that the P / E multiplier in most cases is calculated using a different ratio - EPS.

EPS (Earning per share) is the ratio of earnings per share, calculated as the ratio of the company's annual net profit (excluding dividends on preferred shares) to the average number of traded shares.

In the Russian context, when most companies do not pay dividend payments on common shares, it is the ratio of capitalization to sales that is more applicable than the P / E multiple.

P / S (Price per share / Sales per share) - the ratio of the ratio of capitalization to annual revenue (sales). 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, which is universal, reflects how much of the cash flow generated by the company comes from net income.

EV / EBITDA (Enterprise Value / Earnings Before Interest & Taxes, Amortization and Depreciation) - the ratio of the ratio of the company's value to profit before taxes, interest on loans and depreciation charges. The multiplier most objectively reflects the value of the appraisal object (company). When using the EV / EBITDA multiple, it is advisable to take into account: the tax rate, depreciation, the cost of borrowed capital, the expected growth of EBITDA. The coefficient is used to assess any enterprises, including those with different amounts of long-term liabilities, since it ignores the differences in taxation of profits when calculating 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 similar companies, when revenue, profit before taxes, or, additionally, one of the most important physical parameters or other known indicators are known for the object of assessment and similar objects.

EV / S (Enterprise Value / Sales) - the ratio of the company's value to sales volume. It is calculated and used in a similar way 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 revenue. In addition, this multiplier is least of all affected by random factors. Sales revenue is the easiest metric to find information.

ROA (Return on Assets) - the return on assets ratio. Calculated as the ratio of net profit to the total value of the company's assets. This ratio allows you to assess the economic efficiency (profitability) of the assets at the disposal of the company.

ROE (Return on Earninng) - 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 the economic efficiency (profitability) of the company's share capital. In other words, how much the investments of shareholders (those who own shares) pay off.

ROS (Return on Sales) - ratio of return on sales. 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 efficient a company is from an economic point of view.

Best regards Young analyst

The market approach allows one to carry out a relative valuation of shares among themselves and 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, level of financial leverage, stock market liquidity, issuer's transparency, dividend policy, etc.

Quantification refers to various market indicators or stock ratios, for example: EPS, P / E, P / S, EV / S, P / CF, EV / EBITDA, EV / Production volumes, EV / Production volumes, EV / Reserves and others. ...

Let us dwell on just a few of them.

P / E indicator

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

P / E - multiple of profit;

Ps - share price;

EPS is earnings per share.

The interpretation of the P / E ratio is ambiguous. On the one hand, a high P / E value indicates an optimistic mood of investors, and on the other, an overvaluation of the company's shares. The most important thing to pay attention to when analyzing the P / E ratio is that P / E can be compared only for companies operating in the same industry, with a similar structure of financial flows, as well as with similar scales of activity. And if the P / E ratio is lower than that of other companies, then in this case we can talk about the undervaluation of shares. In the history of the stock market, individual companies have had P / E values \u200b\u200bof 200 or more.

Since many companies tend to distort the value of net profit, sometimes it is more correct to compare not the P / E ratio, but the P / S ratio (or "multiple of the revenue"). It is calculated similarly to the P / E ratio, except that the denominator is not the amount of profit, but the value of revenue. P / S interpretation 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 metric is compared with other campaigns.

EBITDA indicator

Shows the amount of the company's profit before interest, taxes and depreciation. The historical (quarterly) growth of this indicator affects the increase in the market value of shares 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 figure compares with similar industry campaigns: if it is lower than others, we can talk about the undervaluation of the stock.

EV indicator / Production volumes

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 production. A ton, barrel, kW / hour, the number of subscribers, lines, etc. can act as a unit of production. This indicator is compared with similar industry campaigns: if it is lower than that of others, we can talk about the undervaluation of shares.

EV / Stocks

Dividing the value of a company by its reserves, we get a coefficient showing how much investors are willing to pay per unit of reserves. A unit of reserves can be a ton, a barrel, installed capacity, proven reserves of mineral resources, etc. This indicator is compared with similar industry campaigns: if it is lower than others, we can talk about the undervaluation of shares.

Dividend Return Ratio (D / P) or Dividend Yield.

It is defined as the expected dividend per share per year divided by the present value of the share and multiplied by one hundred percent. The comparative indicator is compared with others: the higher this indicator, the more attractive a stock can be for investment.

Beta coefficient

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

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

If the value of a beta stock is higher than one, it means that when the market (index) rises or falls n percent, the price of that stock will rise or fall by more than n percent. Conversely, if a beta stock is in the range from 0 to 1, it means that when the market (index) rises or falls, the stock price rises or falls by less than n percent. Negative values \u200b\u200bof the beta coefficient are very rare, that is, the value of the stock changes in the direction opposite to the general change in the market.

The beta is popular with portfolio investors. It is used to determine the size of the shares of assets in a portfolio. For example, the following approach is used: the higher the coefficient of a stock, the lower the share of this stock in the portfolio.

The point of the market approach is to compare the market ratios of companies' shares with each other to identify the most undervalued or promising shares.

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.

Let's take a look at the most popular P / E ratio. Table 9 shows market ratios for emerging and developing oil and gas companies. developed countries.

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

The data in the table is a little outdated, but it doesn't matter for the P / E ratio study.

Row 1 calculates the average values \u200b\u200bof the coefficients for developed markets (America, Europe), in line 9 - the average values \u200b\u200bof the coefficients for emerging markets, and in line 13 - the average values \u200b\u200bof the coefficients for Russia.

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

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

A ratio of 5.83 means that the value of Russian shares is 5.83 times more than the annual profit on these shares. A ratio of 13.69 means that the share price of companies from developed countries is 13.69 times the annual earnings on those 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, good. It follows from this that Russian shares are much cheaper than those of companies in developed countries. That is, Russian stocks have the potential for growth in market value. The given values \u200b\u200bof the P / E ratios correspond to the end of 2004, and by the fall of 2006 they were already very close to the values \u200b\u200bof the ratios of developed countries. This indicates that the potential for growth in the value of oil and gas companies is very small.

But this does not mean that you should rush to buy Russian stocks with a low P / E ratio. Their undervaluation in comparison with the shares of companies from developed countries is associated with the risks that an investor who buys Russian shares carries. Judging by the P / E ratios, the risks of buying Russian shares are significantly higher than the risks of buying shares of companies from developed countries.

But as you know, risk and return are linked in direct proportion. The greater the risk, the greater the potential income. The lower the risk, the lower the potential income. Therefore, the P / E ratio can be considered the risk of investing in a given company, industry or country.

Among Russian companies, the P / E ratio for 2003 ranges 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 higher than that of Sibneft shares.

How to choose stocks for investment?

If the P / E ratio is thought to have investment risks already in place, the decision to buy or not to buy a stock depends on how much risk you are willing to take on. If you want to get the maximum profit 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 do not want to risk capital and you are satisfied with small profits, then buy stocks with high P / E ratios. Other ratios (P / S, EV / EBITDA, EV / Production volumes, EV / Inventories), etc. can be used in a similar way.

Also, you should be aware that buying little-known stocks at low odds and hoping to get high profit, you need to learn to wait. It takes time for profits to grow. This usually takes 1 to 3 years, but sometimes you have to wait longer (3-7 years).

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

All of the above can be attributed only to general recommendations. For a more serious study of this important topic you need to consult the literature on portfolio investing and portfolio modeling.

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

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

Copyright 2007 Vadim Zverkov - when publishing the link is required.

The ratio of the company's value (EV) to its profit calculated before taxes, interest and amortization (EBITDA) is commonly called the multiplier (or ratio) of EV to EBITDA. The essence of this multiplier is very close to another coefficient reflecting financial position company - P / E ratio. Both show the investor how long their investment in the shares of the company in question will pay off.

This multiplier is calculated by simply dividing the company's value 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 are the advantages of this multiplier over the P / E ratio? Let's list them:

  1. 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 rate (showing earnings per share) will decrease and, accordingly, the P / E rate will increase. But the EV / EBITDA ratio will remain unchanged.
  2. Due to the fact that the multiplier we are considering is ultimately a non-relative value, it can be very successfully used to compare companies with different levels of profitability, levels of use. borrowed money, levels of depreciation charges.

This multiplier should only be used in conjunction with other indicators of the company's performance (financial stability, solvency and profitability ratios). Also, it makes sense to consider its values \u200b\u200bonly in dynamics (you should not rely on a single value calculated for only one time period).

Although by itself (without comparison with other coefficients) it does not represent any analytical significance, but in comparison with similar coefficients of other companies (for the objectivity of the analysis, belonging to the same industry as the analyzed one), it can act as one of the indicators of undervaluation of shares ... So, if the EV / EBITDA of the company in question turns out to be lower than that of other companies belonging to the same industry (or field of activity), then this is evidence of the underestimation of its shares.

Example of EV / EBITDA Multiplier Calculation

Let's calculate this figure using the example of Lukoil. To do this, let's take the reporting data for the second quarter of 2018. Consolidated financial statements of the company 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 company's value (EV). For this we need the following initial data:

  1. Market capitalization of the company (the total value of all shares issued by it);
  2. The company's net debt, which consists of its short-term and long-term debt obligations, less cash and cash equivalents.

The value of Lukoil's market capitalization 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, the link to which is given above in the text.

Let's calculate the company's net debt. To do this, we summarize the values \u200b\u200bof long-term and short-term debt obligations, and then subtract from the resulting result cashat the disposal of the company:

963,517,000,000 + 798,096,000,000 - 339,209,000,000 \u003d 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 \u003d 3 663 375 939 285 + 1 422 404 000 000 \u003d 5 085 779 939 285 rubles

  1. Profit before tax;
  2. Depreciation and amortization;
  3. Interest paid;
  4. Interest received.

The calculation will be carried out according to the formula:

EBITDA \u003d Profit before tax + Depreciation and amortization + Interest paid - Interest received

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

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

EBITDA \u003d 211,863,000,000 + 185,283,000,000 + 19,343,000,000 - 5,355,000,000 \u003d 411,134,000,000

And then we calculate the EV / EBITDA ratio itself:

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

 

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