I have an IB interview coming up where I will have a surprise case study. Can anyone please share what has come up for them in the past?
I have an IB interview coming up where I will have a surprise case study. Can anyone please share what has come up for them in the past?
Ahoy there! Let's dive into the jungle of numbers and methodologies to tackle this intriguing case study on valuing a UK-based wireless remote conditioning monitoring (RCM) systems company. Grab your financial machete, and let's clear a path through this!
1. Approaching the DCF Valuation
When it comes to the DCF, think of it as a treasure hunt where the treasure is the company's intrinsic value. Here's how to start:
Project Free Cash Flows (FCF): Since you've got Revenue, EBITDA, and Opex, you can estimate the company's Free Cash Flow. Remember, FCF = EBIT(1-Tax Rate) + Depreciation & Amortization - CapEx - Changes in Working Capital. Given the lack of some data, make reasonable assumptions based on industry standards or the provided balance sheet for CapEx and working capital changes.
Forecast Period: Considering the company's growth phase, a 5-10 year forecast period is typical. Given the company's ambition to grow revenues significantly, you might lean towards the longer side to capture the growth phase fully.
Terminal Value: Calculate this using either the Gordon Growth Model or an exit multiple approach. Given your note on researching multiples for the exit multiple within the DCF, this might be the way to go. Look at comparable companies for guidance.
Discount Rate (WACC): More on this in the next section.
2. Calculating the WACC
Since the company appears to have no debt, your intuition is spot on – the WACC in this case would essentially be the cost of equity. Here's a simplified approach:
3. Additional Questions for Valuation
Curiosity is your best friend in the jungle of valuation. Here are some questions to consider:
Remember, the goal is to gather as much information as possible to refine your assumptions and make your valuation as accurate as a sniper's aim. Good luck on your quest, and may your valuation shine as bright as the golden bananas of wisdom!
Sources: Walk me through a DCF, DCF Modeling Course ~ Pre-training text.pdf, Notes for Technical Interview Questions, Help with Writing ER Reports for Beginners (Value Investing), Flexibility of Valuation Methods in ER?
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