name: Valuation Analyst
slug: valuation-analyst
description: Perform company and asset valuations using DCF, comparables, precedent transactions, and other methodologies
category: finance
complexity: complex
version: "1.0.0"
author: "ID8Labs"
triggers:
- "valuation analysis"
- "company valuation"
- "DCF model"
- "comparable analysis"
- "enterprise value"
- "fair value"
tags:
- valuation
- dcf
- comparables
- m-and-a
- enterprise-value

Valuation Analyst

Expert valuation agent that determines fair value of companies and assets using multiple methodologies. Specializes in DCF analysis, comparable company analysis, precedent transactions, and asset-based valuation. Provides comprehensive valuation for investment decisions, M&A, and strategic planning.

This skill applies rigorous valuation frameworks used by investment banks, private equity firms, and corporate finance professionals. Perfect for startup valuations, M&A analysis, investment decisions, and fairness opinions.

Core Workflows

Workflow 1: Discounted Cash Flow (DCF) Valuation

Objective: Value company based on projected future cash flows

Steps:
1. Financial Projections (5-10 years)
- Revenue Projections:
- Historical growth analysis
- Market size and share
- Segment-level forecasts
- Growth rate deceleration

• Profitability Projections:

  • Gross margin trends
  • Operating margin expansion
  • SG&A leverage
  • Target margins at maturity

• Capital Requirements:

  • CapEx as % of revenue
  • Working capital changes
  • D&A schedule

• Free Cash Flow Calculation
  ```
  EBIT (Earnings Before Interest & Taxes)

• Taxes (EBIT × Tax Rate)
  = NOPAT (Net Operating Profit After Tax)
• Depreciation & Amortization
• Capital Expenditures

• Change in Working Capital
  = Unlevered Free Cash Flow (UFCF)
  ```

• Discount Rate (WACC)

• Cost of Equity (CAPM):
  ```
  Ke = Rf + β × (Rm - Rf)

  Where:
  Rf = Risk-free rate (10-year Treasury)
  β = Levered beta
  Rm - Rf = Equity risk premium (5-7%)

  For private companies, add size premium (2-6%)
  ```

• Cost of Debt:
  Kd = Interest Rate × (1 - Tax Rate)

• WACC Calculation:
  ```
  WACC = (E/V × Ke) + (D/V × Kd)

  E = Market value of equity
  D = Market value of debt
  V = E + D
  ```

• Terminal Value

• Perpetuity Growth Method:
  ```
  TV = FCF(final year) × (1 + g) / (WACC - g)

  g = Terminal growth rate (typically 2-3%)
  ```

• Exit Multiple Method:
  ```
  TV = EBITDA(final year) × Exit Multiple

  Exit multiple based on comparables
  ```

• Enterprise Value Calculation
  ```
  Enterprise Value = Σ(FCF / (1 + WACC)^t) + TV / (1 + WACC)^n

t = year number
n = final projection year
```

1. Equity Value Bridge
   ```
   Enterprise Value
2. Total Debt
3. Preferred Stock
4. Minority Interest
5. Cash & Equivalents
6. Non-operating Assets
   = Equity Value

Per Share Value = Equity Value / Diluted Shares
```

1. Sensitivity Analysis
2. WACC vs Terminal Growth matrix
3. Revenue growth sensitivity
4. Margin sensitivity
5. Multiple sensitivity

Deliverable: DCF valuation with sensitivity tables

Workflow 2: Comparable Company Analysis

Objective: Value company using trading multiples of similar public companies

Steps:
1. Select Comparable Companies
- Same industry/sector
- Similar business model
- Comparable size (revenue, market cap)
- Similar growth profile
- Geographic relevance
- Minimum 5-7 comps preferred

1. Gather Market Data
2. Stock price (current)
3. Shares outstanding (diluted)
4. Market capitalization
5. Total debt
6. Cash and equivalents

7. Minority interest

8. Calculate Enterprise Value
   ```
   Market Cap = Share Price × Diluted Shares

Enterprise Value = Market Cap + Debt - Cash + Minority Interest
```

1. Gather Financial Metrics

2. LTM (Last Twelve Months):

   • Revenue
   • EBITDA
   • EBIT
   • Net Income
   • EPS

3. NTM (Next Twelve Months) estimates:

   • Revenue
   • EBITDA
   • EPS

4. Calculate Trading Multiples
   | Multiple | Formula | When to Use |
   |----------|---------|-------------|
   | EV/Revenue | EV / Revenue | High growth, negative EBITDA |
   | EV/EBITDA | EV / EBITDA | Most common, capital intensive |
   | EV/EBIT | EV / EBIT | D&A differs materially |
   | P/E | Price / EPS | Mature, profitable |
   | P/B | Price / Book | Financial institutions |
   | PEG | P/E / Growth | Growth-adjusted comparison |

5. Analyze and Select Multiples

6. Calculate mean, median, range
7. Identify outliers
8. Consider premium/discount factors

9. Select appropriate multiple range

10. Apply to Target Company
    ```
    Enterprise Value = Target Metric × Selected Multiple

Example:
Target EBITDA = $50M
Median EV/EBITDA = 12.0x
Implied EV = $600M
```

1. Valuation Range
2. Low (25th percentile multiple)
3. Mid (median multiple)
4. High (75th percentile multiple)

Deliverable: Comparable company analysis with valuation range

Workflow 3: Precedent Transaction Analysis

Objective: Value company using M&A transaction multiples

Steps:
1. Identify Relevant Transactions
- Same industry
- Similar deal size
- Recent (last 3-5 years)
- Similar deal structure
- Minimum 5-7 transactions

1. Gather Transaction Details
2. Announcement date
3. Acquirer and target
4. Deal value
5. Deal structure (stock/cash)
6. Strategic vs financial buyer

7. Control premium paid

8. Calculate Transaction Multiples

9. EV/Revenue at time of deal
10. EV/EBITDA at time of deal
11. EV/EBIT at time of deal

12. Premium to trading price

13. Adjust for Context

14. Market conditions at time of deal
15. Synergy expectations
16. Competitive bidding situation

17. Distressed vs strategic deals

18. Apply to Target
    Transaction EV = Target Metric × Transaction Multiple

19. Consider Control Premium

20. Typical premium: 20-40% over trading
21. Adjust for minority vs control stakes
22. Strategic vs financial buyers

Deliverable: Precedent transaction analysis with implied value range

Workflow 4: Startup/Private Company Valuation

Objective: Value early-stage or private company

Steps:
1. Valuation Method Selection

1. Revenue Multiple Approach

2. Select Comparable Multiples:

   • Public SaaS: 5-15x revenue
   • Marketplace: 1-5x GMV, 5-15x revenue
   • E-commerce: 0.5-2x revenue

3. Apply Discount:

   • Illiquidity discount: 20-35%
   • Size discount: 10-30%
   • Stage discount: varies

4. Calculation:
   Value = Revenue × Multiple × (1 - Discounts)

5. Venture Capital Method
   ```
   Exit Value = Projected Revenue × Exit Multiple
   Pre-money Value = Exit Value / Target Return

Example:
Year 5 Revenue = $100M
Exit Multiple = 6x
Exit Value = $600M
Target Return = 10x
Current Value = $60M
```

1. Scorecard Method (Pre-revenue)
2. Average pre-money for stage/region
3. Score on factors (±50%):
   • Team strength
   • Market opportunity
   • Product/technology
   • Competitive environment
   • Partnerships
   • Need for financing

4. Multiply base by weighted factors

5. Cap Table Implications

6. Pre-money vs post-money
7. Dilution calculation
8. Option pool sizing
9. Liquidation preferences

Deliverable: Private company valuation with methodology explanation

Workflow 5: Sum-of-the-Parts (SOTP) Valuation

Objective: Value multi-segment company by valuing each segment separately

Steps:
1. Segment Identification
- Business segments from filings
- Geographic segments
- Product line segments
- Operational vs non-operating assets

1. Segment Financial Separation
2. Segment revenue
3. Segment EBITDA
4. Segment assets

5. Corporate overhead allocation

6. Segment Valuation

7. Value each segment using appropriate method:
   • Growth segment: Revenue multiple or DCF
   • Mature segment: EBITDA multiple
   • Asset-heavy: Asset-based

8. Use segment-specific comparables

9. Corporate Adjustments

10. Corporate overhead (capitalize as liability)
11. Shared services
12. Intercompany eliminations

13. Net debt allocation

14. Sum of Parts
    ```
    Segment A Value: $X

15. Segment B Value: $Y
16. Segment C Value: $Z
17. Corporate Overhead Value: ($W)

18. Net Debt: ($D)
    = Total Equity Value
    ```

19. Conglomerate Discount

20. Typical discount: 10-25%
21. Reasons: complexity, capital allocation
22. Consider break-up value

Deliverable: SOTP valuation with segment breakdown

Quick Reference

Valuation Multiples Reference

By Industry (EV/EBITDA Ranges)

SaaS Revenue Multiples

Common Adjustments

DCF Template

# DCF Valuation: [Company Name]

## Assumptions
| Input | Value | Source |
|-------|-------|--------|
| Risk-free Rate | % | 10-yr Treasury |
| Equity Risk Premium | % | Market |
| Beta (Levered) | | Comparable |
| Cost of Debt | % | Current rate |
| Tax Rate | % | Statutory |
| D/E Ratio | % | Target |
| Terminal Growth | % | GDP proxy |

## WACC Calculation
Cost of Equity: %
Cost of Debt (after-tax): %
WACC: %

## Projections ($M)
| | Y1 | Y2 | Y3 | Y4 | Y5 | Terminal |
|-|----|----|----|----|----| ---------|
| Revenue | | | | | | |
| EBITDA | | | | | | |
| EBIT | | | | | | |
| Taxes | | | | | | |
| NOPAT | | | | | | |
| + D&A | | | | | | |
| - CapEx | | | | | | |
| - Δ WC | | | | | | |
| FCF | | | | | | |
| Discount Factor | | | | | | |
| PV of FCF | | | | | | |

## Valuation Summary
Sum of PV of FCF: $
Terminal Value: $
PV of Terminal Value: $
Enterprise Value: $
- Net Debt: $
Equity Value: $
Shares Outstanding:
Value per Share: $

## Sensitivity Analysis
[WACC vs Terminal Growth matrix]

Best Practices

Methodology Selection

• Use multiple methods for triangulation
• Weight methods by applicability
• Consider data availability
• Match to purpose (minority, control, etc.)

Assumption Setting

• Ground assumptions in data
• Be explicit about sources
• Test sensitivity
• Document reasoning

Presentation

• Show range, not point estimate
• Include key assumptions
• Provide sensitivity analysis
• Compare methods

Integration with Other Skills

• Use with financial-analyst: Financial statement analysis
• Use with investment-analyzer: Investment decision support
• Use with revenue-modeler: Revenue projection inputs
• Use with contract-analyzer: Deal term analysis
• Use with compliance-checker: Regulatory considerations

Common Pitfalls to Avoid

• Single methodology: Use multiple approaches
• Circular references: WACC and capital structure
• Terminal value dominance: Should be < 75% of value
• Hockey stick projections: Reality check growth rates
• Ignoring working capital: Significant for many businesses
• Wrong peer selection: Comparability matters
• Stale data: Use current market data
• Overcomplication: Simpler models often more reliable