04/22/2022, 20:29:11 1 of 10 document.xls, Instructions L.E.K. Valuation Toolkit Version: May 7, 2001 It also employs the following conventions: Sheet Description Conventions: Blue Text ValueLine Black Text Relevers Betas for use in peer group cost of equity analysis These either select inputs or reset inputs Calculates current prices based on multiples Calculates acquisition prices based on past transactions Disclaimer: quickly perform a business valuation, identify its primary value drivers, and assess an appropriate capital structure. It contains several worksheets: Value Drivers Calculates value drivers from historical and forecast financial information These cells are inputs. You may enter values. Calculates value drivers from information on a ValueLine Report These cells are formulas. They are protected and cannot be modified. Peer Group Beta Buttons with Blue Text These must be pressed to calculate an answer Shareholder Value Calculates shareholder value based on value drivers input from either of the prior two worksheets or ones that are entered Sensitivitie s Analysis Produces "Tornado" charts based on the value drivers used on the "Shareholder Value" worksheet Buttons with Black Text Current Multiples Transaction Multiples Capital Structure Assesses an appropriate capital structure based on "downside" cash flows Peer Group Cap. Struct. Calculates debt to total capital ratios for peers using book and market numbers This toolkit is intended for pedagogic purposes only. L.E.K. Consulting LLC assumes no responsibility for analyses conducted with this toolkit and assumes no liability for any decisions made on the basis of such analysis. All rights reserved.
04/17/2023, 16:44:14 1 of 10 document.xls, Instructions
L.E.K. Valuation Toolkit
Version: May 7, 2001
It also employs the following conventions:
Sheet Description Conventions:
Value Drivers Calculates value drivers from historical and forecast financial information Blue Text These cells are inputs. You may enter values.
ValueLine Calculates value drivers from information on a ValueLine Report Black Text
Relevers Betas for use in peer group cost of equity analysis
These must be pressed to calculate an answer
These either select inputs or reset inputsCalculates current prices based on multiples
Calculates acquisition prices based on past transactions
Assesses an appropriate capital structure based on "downside" cash flows
Calculates debt to total capital ratios for peers using book and market numbers
Disclaimer:
Welcome to the L.E.K. Valuation Toolkit. This model is designed to help you quickly perform a business valuation, identify its primary value drivers, and assess an appropriate capital structure. It contains several worksheets:
These cells are formulas. They are protected and cannot be modified.
Peer Group Beta Buttons with
Blue TextShareholder Value
Calculates shareholder value based on value drivers input from either of the prior two worksheets or ones that are entered directly
Sensitivities Analysis
Produces "Tornado" charts based on the value drivers used on the "Shareholder Value" worksheet Buttons with
Black TextCurrent Multiples
Transaction Multiples
Capital Structure
Peer Group Cap. Struct.
This toolkit is intended for pedagogic purposes only. L.E.K. Consulting LLC assumes no responsibility for analyses conducted with this toolkit and assumes no liability for any decisions made on the basis of such analysis. All rights reserved.
04/17/2023, 16:44:15 Page 2 of 10 document.xls, Value Drivers
Value Driver Calculations
Company Name: Acme Corporation Scenario: Base Case Units: $ millions First Historical Year 1998Last Historical Year 2000
Cost of Debt 8.50%Cash Tax Rate 36.00%After-Tax Cost of Debt 5.44%
Current Stock Price $15.00 Number of Shares Outstanding 100.00 Market Value of Equity $1,500.00 Debt/Total Capital 25.00%
Cost of Capital (K) 9.61%
Chosen Cost of Capital (K) 9.61%
Non-Operating Assets $100.00
C6
L.E.K. Consulting: This worksheet calculates value drivers for any historical and forecast periods for which information is provided. The calculated value drivers can be copied to the Shareholder Value worksheet by pressing the "Use Inputs from Value Driver Sheet" button on that sheet. Before doing so, review the value drivers in rows 53-57 below and edit the values as necessary. You do not have to enter value drivers for all of the forecast periods used in the Shareholder Value worksheet. The Toolkit uses the value drivers in the last period for which data was provided for all subsequent periods.
B11
L.E.K. Consulting: Enter the first historical year for analysis. Note: This can be the same as the last historical year.
B12
L.E.K. Consulting: Enter the last historical year. The toolkit will treat any subsequent periods as forecast periods.
B19
L.E.K. Consulting: This should include Depreciation, or some other proxy for Economic Depletion. Under common accounting standards, it usually does (COGS usually includes depreciation allocated to units of inventory sold).
B21
L.E.K. Consulting: Do not include Interest Expense or other financing expenses.
B26
L.E.K. Consulting: This section calculates the operating cash taxes paid in any period for which you provide information. Note: If you see "Enter All" in the Operating Cash Taxes line (Row 31), you must enter values for all four inputs. Enter 0 if you do not have any other values.
B27
L.E.K. Consulting: This comes directly from the Income Statement
B28
L.E.K. Consulting: This is the amount of additional taxes that would be paid if the business had no debt. It is calculated by multiplying Interest Expense by the Book Tax Rate.
B29
L.E.K. Consulting: This is calculated by multiplying Non-Operating Income by the Book Tax Rate. The Book Tax Rate is calculated by dividing Pre-Tax Income by Income Tax Provision.
B30
L.E.K. Consulting: This is the difference between deferred tax liabilities in each period (net of deferred tax assets) and the prior period. Net increases in deferred tax liabilities should be entered as positive numbers. Net increases in deferred tax assets should be entered as negative numbers.
B35
L.E.K. Consulting: Since Depreciation was subtracted as part of Cost of Goods Sold (COGS) it must be added back to Cash Flow (subtracted from investment) here.
B39
L.E.K. Consulting: Only include cash that is necessary for operations. Include marketable securities and other non-operating cash in "Non-Operating Assets" below.
B47
L.E.K. Consulting: Exclude financing current liabilities such as Current Portion of Long-Term Debt and other Non-Operating items. Include these items in "Market Value of Debt" below.
B54
L.E.K. Consulting: Pre-Tax Profits from operations including the subtraction of Economic Depletion (Depreciation is often used as a proxy).
B55
L.E.K. Consulting: This is the amount of cash taxes that would be paid from operations as a percentage of Operating Profit.
B56
L.E.K. Consulting: The amount added to operating fixed capital (over and above Economic Depletion) as a percentage of change in Sales.
B57
L.E.K. Consulting: This is the increase in Operating Working Capital as a percentage of change in Sales.
B59
L.E.K. Consulting: This is the market weighted average return required by Debt and Equity holders.
B60
L.E.K. Consulting: Enter the market value of debt and all other non-operating claims. These could include under-funded pension plans and contingent liabilities such as site remediation and litigation settlements.
B61
L.E.K. Consulting LLC: While Preferred stock is treated as part of Debt in the Debt/Total Capital ratio, it is separated from Debt in calculating the Cost of Capital. The Cost of Preferred is assumed to be the Pre-Tax Cost of Debt.
B64
L.E.K. Consulting: This is a measure of the business' equity risk relative to the market (systematic risk). A value of "1" implies that it has average risk.
B65
L.E.K. Consulting: Use a rate that corresponds to a Government security with the same term as the life of the investment. For ongoing entities, use the highest rate, longest term, liquid instrument.
B66
L.E.K. Consulting: This is the additional amount of compensation equity holders require for putting their money in equities vs. risk-free investments. It is calculated by subtracting the long-term risk-free rate from the expected market return. You can find a current value for this by going to "www.alcar.net" and selecting "Services" and "Market Risk Premium".
B69
L.E.K. Consulting: This is the current weighted average yield to maturity on the business' debt portfolio. Alternatively, it is the rate that your credit department would extend to this business.
B70
L.E.K. Consulting: The default is the operating cash tax rate in the last historical period.
B73
L.E.K. Consulting: For private businesses, enter an estimate, use the resulting cost of capital to calculate a DCF stock price and update this entry.
B82
L.E.K. Consulting: These include Marketable Securities, investments in other businesses, the present value of non-operating income after-tax, and non-operating land.
04/17/2023, 16:44:15 3 of 10 document.xls, ValueLine
ValueLine Value Driver Calculations
Company Name: Acme Corporation Incremental Working Capital Investment (W)Scenario: Base Case Historical Approach: 1999 2000Units: ($ millions) Current Operating Assets $114.60 $130.94
Current Operating Liabilities $22.84 $26.23 Forecast Period Operating Working Capital $91.76 $104.71 Last Historical Year 2000 Incremental Working Capital $12.95 Last Year of Value Line Forecast 2005 Sales $870.55 $1,000.00
Cost of Equity 11.00%Chosen Operating Cash Tax Rate (T) 36.00%
Cost of Debt 8.50%Incremental Fixed Capital Investment (F) 2000 2005 After-Tax Cost of Debt 5.44%Capital Spending per Share $0.48 $0.97 # of Shares 100.00 100.00 Current Stock Price $15.00 Capital Spending $48.48 $96.95 Number of Shares Outstanding 100.00 Depreciation $22.59 $45.17 Market Value of Equity $1,500.00 Spending-Depreciation $25.89 $51.78 Debt/Total Capital 25.00%Yearly Incremental Sales $129.45 $258.90 Inc. Fixed Capital Investment (F) 20.00% 20.00% Cost of Capital (K) 9.61%Average F 20.00%
2000Chosen Incremental Fixed Capital Investment (F) 20.00% Non-Operating Assets $100.00
C4
L.E.K. Consulting: This worksheet calculates forecast value drivers based on information provided on a ValueLine report. The calculated value drivers can be copied to the Shareholder Value worksheet by pressing the "Use Inputs from ValueLine Sheet" button on that sheet.
F6
L.E.K. Consulting: This is the increase in Operating Working Capital as a percentage of change in Sales. ValueLine gives you two ways to calculate this number (neither of which is perfect). The historical approach uses 2 years of historical information to calculate W. It allows you to separate out operating an non-operating working capital, but only for one historical year. The forecast approach provides the longer term average and is based on forecast data, but does not separate out operating and non-operating working capital. You can choose either estimate for W, or enter one of your own.
F8
L.E.K. Consulting: Exclude Marketable Securities and Non-Operating Current Assets (Include them in Non-Operating Assets)
F9
L.E.K. Consulting: Exclude Current Portion of Long-Term Debt and other Non-Operating current Liabilities
B11
L.E.K. Consulting: Check the date on the bottom right corner of the ValueLine sheet to determine this date.
B12
L.E.K. Consulting: ValueLine gives a range for its final forecast year (e.g., 2004-2006). Choose the middle year (e.g., 2005).
F17
L.E.K. Consulting: Value Line does not subtract non-operating items (such as current portion of long term debt) in calculating Working Capital.
B18
L.E.K. Consulting: Pre-Tax Profits from operations including the subtraction of Economic Depletion (Depreciation is often used as a proxy).
B21
L.E.K. Consulting: ValueLine does not subtract Depreciation in calculating their Operating Profit Margin, so we need to subtract it here.
H21
L.E.K. Consulting: Choose an Incremental Working Capital Number from Historical, Forecast, or other approach. Forecast is the default.
F23
L.E.K. Consulting: This is the market weighted average return required by Debt and Equity holders.
F24
L.E.K. Consulting: Use "Total Debt" in the Capital Structure box.
F25
L.E.K. Consulting LLC: While Preferred stock is treated as part of Debt in the Debt/Total Capital ratio, it is separated from Debt in calculating the Cost of Capital. The Cost of Preferred is assumed to be the Pre-Tax Cost of Debt.
D26
L.E.K. Consulting: Choose a value for P. The default is an average of the estimated values.
B28
L.E.K. Consulting: Ideally, this is the amount of cash taxes that would be paid from operations as a percentage of Operating Profit. However, ValueLine only gives one book tax number per year.
F28
L.E.K. Consulting: This is a measure of the business' equity risk relative to the market (systematic risk). A value of "1" implies that it has average risk.
F29
L.E.K. Consulting: Use a rate that corresponds to a Government security with the same term as the life of the investment. For ongoing entities, use the highest rate, longest term, liquid instrument.
F30
L.E.K. Consulting: This is the additional amount of compensation equity holders require for putting their money in equities vs. risk-free investments. It is calculated by subtracting the long-term risk-free rate from the expected market return.
F33
L.E.K. Consulting: This is the current weighted average yield to maturity on the business' debt portfolio. A rough estimate can be estimated by dividing "LT Interest" by "LT Debt" on a ValueLine sheet.
B34
L.E.K. Consulting: The amount added to operating fixed capital (over and above Economic Depletion) as a percentage of change in Sales.
F37
L.E.K. Consulting: Use the number from the bottom of the "Capital Structure" box on the ValueLine sheet. It is the most current.
C40
L.E.K. Consulting: Enter the difference between this period's and the prior period's Sales
D40
L.E.K. Consulting: Calculated using forecast Sales and the Sales Growth Rate calculated above.
D44
L.E.K. Consulting: Choose a value for F. The default is an average of the estimated values.
F44
L.E.K. Consulting: These include Marketable Securities, investments in other businesses and non-operating land. ValueLine shows "Cash Assets" in the Current Position Box, but does not separate operating from non-operating. Unless cash assets are high, it is common to assume these equal zero.
04/17/2023, 16:44:15 4 of 10 document.xls, Peer Group Beta
L.E.K. Consulting: This worksheet calculates the weighted average relevered beta for use in peer group cost of equity analysis. Once calculated, the peer group relevered beta can be copied into either the Value Drivers worksheet or the ValueLine worksheet by pressing a button on the top of each worksheet.
C9
L.E.K. Consulting: After all information has been entered, this is the beta to be used in calculating the cost of equity for the company being valued.
B13
L.E.K. Consulting: Enter each Peer's observed (levered) Beta
C13
L.E.K. Consulting: Ideally, this should be the time weighted average leverage (on a market basis) over the period the beta was estimated (usually 5 years).
D13
L.E.K. Consulting: This is each Peer's Operating Cash Tax Rate
E13
L.E.K. Consulting: This is the beta each Peer would have if it had no debt in its capital structure.
F13
L.E.K. Consulting: This is the target capital structure (using market values) that the company's management intends to use in the future. All Peers' betas are relevered to this target.
G13
L.E.K. Consulting: This is the Operating Cash Tax Rate of the company being valued
H13
L.E.K. Consulting: This is the beta each peer would have if it had the same capital structure as the company being valued.
I13
L.E.K. Consulting: These are the weights used in averaging the relevered Peer betas. Since even weights are most common, the default value is "1.00" for all peers. However, if for example you feel that one peer is twice as good a peer as the others, enter 2 to double its weight (the program normalizes any entered weights to sum to 100%).
04/17/2023, 16:44:15 5 of 10 document.xls, Shareholder Value
Shareholder Value Calculator
Company Name: Acme Corporation Scenario: Base Case Units: $ millions
Shareholder Value $344.8Shareholder Value Per Share $3.45
Value Growth Duration (Years) 5Residual Value NOPAT/K
Value Drivers: 2000 2001 2002 2003 2004 2005Historical Sales $1,000.0Sales Growth (G) 14.87% 14.87% 14.87% 14.87% 14.87%Operating Profit Margin (P) 8.00% 8.00% 8.00% 8.00% 8.00%Operating Cash Tax Rate (T) 36.00% 36.00% 36.00% 36.00% 36.00%Incremental Fixed Capital Investment (F) 20.00% 20.00% 20.00% 20.00% 20.00%Incremental Working Capital Investment (W) 10.00% 10.00% 10.00% 10.00% 10.00%Cost of Capital (K) 9.61% 9.61% 9.61% 9.61% 9.61%Non-Operating Assets $100.00 $100.00 $100.00 $100.00 $100.00Market Value of Debt $500.00 $500.00 $500.00 $500.00 $500.00Number of Shares Outstanding 100.00 100.00 100.00 100.00 100.00
PV of Residual Value 673.5Non-Operating Assets 100.0
Corporate Value 844.8Market Value of Debt 500.0
Shareholder Value (SHV) $344.8
Share Price $3.45
B3
L.E.K. Consulting: This worksheet calculates shareholder value based on value drivers entered in one of several ways: manually, from the Value Drivers worksheet, or from the ValueLine worksheet. To choose a method (or reset manually entered value drivers), press the associated button above. By default, this worksheet employs the NOPAT/K approach to calculate residual value which assumes value is neither created nor destroyed after the forecast period (i.e., the business earns its cost of capital). For consistency, Value Growth Duration (a.k.a. Competitive Advantage Period) should be set to equal the number of years investors expect the business to earn above its cost of capital before the returns of its strategy are competed down to the cost of capital.
A12
L.E.K. Consulting: Enter the number of years that the business could earn above its cost of capital before the returns associated with its strategy are competed down to the cost of capital. Enter an integer between 1 and 20.
A13
L.E.K. Consulting: The default approach to calculating residual value is NOPAT/K which corresponds to the economic assumption that no value is created nor destroyed beyond the forecast period. However, if the economics of the business do not match this assumption, you can enter a nominal value for the business at the end of the forecast period. For example: - If a business is liquidating and the end of the forecast period, entering the net asset value of the business (using market values) would be more appropriate. - If a business has a competitive advantage that will allow it to create value beyond the forecast period entering a value that is higher than NOPAT/K is appropriate. The residual value can be reset to NOPAT/K by pressing any of the input buttons above, or by typing NOPAT/K (all caps).
A18
L.E.K. Consulting: Pre-Tax Profits from operations including the subtraction of Economic Depletion (Depreciation is often used as a proxy).
A19
L.E.K. Consulting: Ideally, this is the amount of cash taxes that would be paid from operations as a percentage of Operating Profit. However, ValueLine only gives one tax number per year.
A20
L.E.K. Consulting: The amount added to operating fixed capital (over and above Economic Depletion) as a percentage of change in Sales.
A21
L.E.K. Consulting: This is the increase in Operating Working Capital as a percentage of change in Sales.
A22
L.E.K. Consulting: This is the market weighted average return required by Debt and Equity holders.
A23
L.E.K. Consulting: These include Marketable Securities, investments in other businesses and non-operating land.
A24
L.E.K. Consulting: Use the Market Value of Debt wherever possible.
04/17/2023, 16:44:15 6 of 10 document.xls, Sensitivities Analysis
Sensitivities Analysis
Company Name: Acme Corporation Scenario: Base Case
Range
Value Driver Value Additive Modifier Low Range High RangeSales Growth (G) 14.9% 10.0% 1.0% 13.9% 15.9%Operating Profit Margin (P) 8.0% 10.0% 1.0% 7.0% 9.0%Operating Cash Tax Rate (T) 36.0% 10.0% 1.0% 35.0% 37.0%Incremental Fixed Capital Investment (F) 20.0% 10.0% 1.0% 19.0% 21.0%Incremental Working Capital Investment (W) 10.0% 10.0% 1.0% 9.0% 11.0%Cost of Capital (K) 9.6% 10.0% 1.0% 8.6% 10.6%
Sensitivity Analysis Results
Change in Shareholder Value$ millions Multiplicative Additive Range
L.E.K. Consulting: This worksheet calculates the sensitivity of shareholder value to positive and negative changes to each value driver in each period. The sensitivities are calculated three ways: The Multiplicative approach multiplies and divides each value driver by "(1 x Modifier)" and is the most direct answer to the question, "Which value drivers have the greatest impact on value?" The Additive approach adds and subtracts the "Modifier" from each value driver and provides the best answer to questions such as, "If a strategy increases sales growth by X% but causes profits to fall by Y%, would it create value?" The Range approach uses the "Low" and "High" values of each value driver throughout all forecast periods. It provides answers to questions such as, "How much would value change if sales growth ranged from X% to Y%?" Note: If tornado charts look funny because both "Low" and "High" range values produce positive (or negative) changes in value, enter new ranges that include the average value drivers throughout the forecast period. After entering modifiers and ranges you must press the "Plot Sensitivity Graphs" button to perform the analyses.
H5
L.E.K. Consulting: This is the range of values each value driver might have. This approach is appropriate when value driver ranges are not constant. Note: When value drivers are not constant throughout the forecast period on the Shareholder Value worksheet default ranges might not be appropriate.
E6
L.E.K. Consulting: These are the value driver values from (the last forecast period of) the Shareholder Value Sheet and are displayed for reference purposes only. The sensitivity calculations are performed on a period by period basis.
F6
L.E.K. Consulting: This is the percentage change applied to each value driver. This approach best identifies which drivers have the biggest impact on value.
G6
L.E.K. Consulting: This is the constant amount to be added to, and subtracted from each value driver. This approach is most useful for assessing strategic trade-offs.
D8
L.E.K. Consulting: Pre-Tax Profits from operations including the subtraction of Economic Depletion (Depreciation is often used as a proxy).
D9
L.E.K. Consulting: Ideally, this is the amount of cash taxes that would be paid from operations as a percentage of Operating Profit. However, ValueLine only gives one tax number per year.
D10
L.E.K. Consulting: The amount added to operating fixed capital (over and above Economic Depletion) as a percentage of change in Sales.
D11
L.E.K. Consulting: This is the increase in Operating Working Capital as a percentage of change in Sales.
D12
L.E.K. Consulting: This is the market weighted average return required by Debt and Equity holders.
04/17/2023, 16:44:15 Page 7 of 10 Current Multiples, document.xls
Peer Group Average Ratios Implied Equity Prices Implied Corporate PricesSales Multiple 0.80 $23,069.8 $27,819.8EBITDA Multiple 12.98 $16,761.9 $21,511.9P/E Multiple 15.51 $22,479.9 $27,229.9Market/Book Ratio 2.26 $35,189.1 $39,939.1Average Implied Price $24,375.2 $29,125.2
Number of Shares
Market Equity Value
Corporate Value
Book Equity Value
D5
L.E.K. Consulting: This worksheet calculates a business' current Equity and Corporate prices by using peer average price ratios: Equity Price = Peer Price/Sales Ratio x Business Sales - Debt Equity Price = Peer Price/EBITDA x Business EBITDA - Debt Equity Price = Peer Price/Earnings x Business Earnings Equity Price = Peer Market/Book Value x Business Book Value Corporate Price = Peer Price/Sales Ratio x Business Sales Corporate Price = Peer Price/EBITDA x Business EBITDA Corporate Price = Peer Price/Earnings x Business Earnings + Debt Corporate Price = Peer Market/Book Value x Business Book Value + Debt Because the price in each ratio (the numerator) is a current market price, the resulting price is a current price. Enter current (or normalized) operating numbers for the peers and the business to be priced.
E10
L.E.K. Consulting: This is the current market equity value. It is calculated by multiplying the share price by the number of shares for each peer.
F10
L.E.K. Consulting: Enter the current market value of debt. When this is not available, the book value of debt can be used as a proxy.
G10
L.E.K. Consulting: This is the total current market capitalization. It is calculated by adding the Market Equity Value and Debt for each peer.
I10
L.E.K. Consulting: Enter Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
J10
L.E.K. Consulting LLC: Enter Net Income here.
K10
L.E.K. Consulting: Enter the Equity value from the Balance Sheet.
D25
L.E.K. Consulting: These are the equity prices that result from applying each Peer Group Average Ratio to the business being valued.
F25
L.E.K. Consulting: These are the total corporate prices (Debt plus Equity) that result from applying each Peer Group Average Ratio to the business being valued.
B26
L.E.K. Consulting: This is the ratio of peer total Corporate Value to peer total Sales.
B27
L.E.K. Consulting: This is the ratio of peer total Corporate Value to peer total EBITDA.
B28
L.E.K. Consulting: This is the ratio of peer total Market Equity Value to peer total Earnings.
B29
L.E.K. Consulting: This is the ratio of peer total Market Equity Value to peer Book Equity Value.
04/17/2023, 16:44:15 Page 8 of 10 document.xls, Transaction Multiples
L.E.K. Consulting: This worksheet calculates a business' Equity and Corporate acquisition prices by using peer average acquisition price ratios: Equity Price = Peer Price/Sales Ratio x Business Sales - Debt Equity Price = Peer Price/EBITDA x Business EBITDA - Debt Equity Price = Peer Price/Earnings x Business Earnings Equity Price = Peer Market/Book Value x Business Book Value Corporate Price = Peer Price/Sales Ratio x Business Sales Corporate Price = Peer Price/EBITDA x Business EBITDA Corporate Price = Peer Price/Earnings x Business Earnings + Debt Corporate Price = Peer Market/Book Value x Business Book Value + Debt Because the price in each ratio (the numerator) is a recent transaction price, the resulting ratio includes the premiums that past acquirers paid, and the resulting price is an acquisition price. Enter current (or normalized) operating numbers for the peers and the business to be priced.
E10
L.E.K. Consulting: Enter the market price paid for the target's equity.
F10
L.E.K. Consulting: Enter the current market value of debt. When this is not available, the book value of debt can be used as a proxy.
G10
L.E.K. Consulting: This is the total current market capitalization. By default, it is calculated by adding the Market Equity Value and the Debt for each transaction.
I10
L.E.K. Consulting: Enter Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
J10
L.E.K. Consulting LLC: Enter Net Income here.
K10
L.E.K. Consulting: Enter the Equity value from the Balance Sheet.
D25
L.E.K. Consulting: These are the equity acquisition prices that result from applying each Peer Group Average Ratio to the target business being priced.
F25
L.E.K. Consulting: These are the total corporate acquisition prices (Debt plus Equity) that result from applying each Peer Group Average Acquisition Ratio to the business being priced.
B26
L.E.K. Consulting: This is the ratio of peer total Corporate Value to peer total Sales.
B27
L.E.K. Consulting: This is the ratio of peer total Corporate Value to peer total EBITDA.
B28
L.E.K. Consulting: This is the ratio of peer total Market Equity Value to peer total Earnings.
B29
L.E.K. Consulting: This is the ratio of peer total Market Equity Value to peer Book Equity Value.
04/17/2023, 16:44:15 9 of 10 document.xls, Capital Structure
Capital Structure Analysis
Company Name: Acme Corporation Scenario: Base Case Units: $ millions
L.E.K. Consulting: This worksheet calculates an appropriate amount of debt for a business based on "downside cash flow" analysis. It calculates the maximum amount of debt the business could support in a "downside" scenario while still making all key investments, making all expected dividend payments and meeting the repayment criteria of their lenders. Cash flows can be entered in one of several ways by pressing the associated button above: - Manually in rows 29 and 30, - From the Shareholder Value worksheet (if you've entered a downside scenario there), or - By adjusting the scenario in the Shareholder Value worksheet to a downside scenario by reducing value drivers in the "Adjust SHV Cash Flows for Downside" box below. Enter negative percentage changes in cells E22-E26 to reduce value drivers in each period by a corresponding (additive) amount. If you change any inputs you must press the "Solve for Appropriate Debt Amount" button to get an answer.
D9
L.E.K. Consulting: Enter the pre-tax rate that lenders are willing to extend to the business.
D10
L.E.K. Consulting: Enter the business' operating cash tax rate. The default is from the Shareholder Value worksheet.
D11
L.E.K. Consulting: The percentage of initial principal that must be paid down before the end of the repayment period specified above.
D14
L.E.K. Consulting: This is the maximum amount of debt the business could support in a "downside" scenario while still making all key investments, making all expected dividend payments and meeting the repayment criteria of their lenders.
D15
L.E.K. Consulting: If you wish to calculate debt repayment or leverage ratios at a different amount of debt, enter it here. The default is the Appropriate Debt Amount and is reset whenever you press the "Solve for Appropriate Debt Amount" button.
B19
L.E.K. Consulting: This allows you to change the scenario on the Shareholder Value worksheet to a downside scenario by modifying the value drivers.
E20
L.E.K. Consulting: This is an additive change. For example, entering "-1" would subtract one percentage point from the value driver in each forecast period.
D29
L.E.K. Consulting: These should include all investments that are necessary to meet investors' expectations and enhance value. When entered from the Shareholder Value worksheet, cash flows beyond the forecast period are extrapolated using the value drivers from the last forecast period.
D30
L.E.K. Consulting: Enter any common and preferred dividends here. They are subtracted because not paying them would send a negative signal to the market.
E34
L.E.K. Consulting: This is the "Selected Debt Amount" entered above.
D37
L.E.K. Consulting: This section calculates leverage ratios based on the "Selected Debt Amount" in cell E15 and downside values of EBIT in each period.
D38
L.E.K. Consulting: Enter the market equity value. The default is from the Shareholder Value worksheet. If you entered a downside scenario on that worksheet you will get downside leverage ratios. If you entered a base case on that worksheet, you will get current leverage ratios.
D42
L.E.K. Consulting: This is calculated as downside EBIT divided by Pre-Tax Interest Expense in each period.
D44
L.E.K. Consulting: This is Earnings Before Interest and Taxes from the downside scenario.
D45
L.E.K. Consulting: Enter Depreciation and Amortization Expense in each forecast period. This is only required for calculating EBITDA and affects no other calculations on this worksheet.
04/17/2023, 16:44:15 10 of 10 document.xls, Peer Group Cap. Struct.
L.E.K. Consulting: This worksheet calculates average debt to total capital ratios for a peer group using both book and market values. In general, the market value approach is preferred because investors demand returns on the market values of their investments. For private businesses, you can use the Shareholder Value worksheet to estimate the market value of equity.
B11
L.E.K. Consulting: This is the value of a business' debt as indicated on its balance sheet.
C11
L.E.K. Consulting: This is the value of a business' equity as indicated on its balance sheet.
E11
L.E.K. Consulting: For public debt instruments, this is the sum of the market values of all of a business' debt instruments. For private businesses, it can be calculated as the present value of all debt payments discounted at the current market yield to maturity. If the debt was recently issued, or has a floating rate, the book value of debt can be a good proxy for the market value of debt. For that reason the value entered in "Book Value of Equity" arises as the default.
F11
L.E.K. Consulting: For public companies, this is the current share price as quoted in an financial journals and databases. For private companies, it is the DCF value per share and can be calculated using the Shareholder Value worksheet.
G11
L.E.K. Consulting: This is the current number of equity shares outstanding. It should be entered in the same units as in cell B8.
H11
L.E.K. Consulting: This is the current market value of equity. Since the market value of equity can be very different than the book value, it is important to calculate/estimate this value whenever possible. It is calculated as the product of the share price and the number of shares outstanding.
A22
L.E.K. Consulting: Averages are calculated by summing numerators, summing denominators and then dividing. This process diminishes the impact of outliers, but weights the capital structures of larger companies more heavily.
