I’d like to walkabout a different way of approaching valuation when you try to value and acid based not on its fundamentals but based on what other people are paying for assets just like it it’s called pricing or relative valuation and it turns outta be the way that ninety percent of what passes for evaluation out there is really it’s done so these last few sessions we’ve laid out and looked at the details of entrance evaluation or in particular we use this kind of casual evaluation to value the company but in this session I want to turn to a different way of thinking about valuation I’m going to call it relative valuation.
But i think abetter term for it is pricing so let me back up and talk a little bit about where I’m going with this concept in relative Property Valuers Perth rather than value company based on its fundamentals its cash flows growth and risk you value company by looking at how the market is pricing other companies just like so if you break down relative valuation it has three parts to it the first part is to find out the companies that you claim are just like your company tough too tough to do but that’s the first step the second is you got to standardize.
prices what i mean by that is you cannot compare the price per share across companies because in a sense it’s an arbitrary number arbitrary why is valid a stock split my price per share would have so you can’t look at the price per share you have to divide it by some number and that’s what you do when you use multiple to divide price by earnings a price-to-book you have a standardized price to find out the companies like yours you standardize surprise and then if you’re careful you probably will notice that your company’s still different from those other companies in terms of growth and risk in cash flows you have to control for those differences so find compartmentalized.
so I’ll just quickly go back explain model that is full dark as wean show your income till happy days you know pay slips and notices of assessment you know or if you’re in a business situation then it’s like financials generally for one to two years most the time two years and also tax returns fort’s then you go down to low doc we’re basically they’ll work off turn over countenance declarations.
All that kind of thing and then you get sane dark well they just want to hear what the story is so you just say look you know they’re going to be putting a lot of money into the deal it’s going to fund itself that client can’t verify any income and then if the LVI low enough it’s happy days so in the lot in the no dock space obviously managers aren’t playing property valuer job description in there but we do have some pretty.
Big lenders and a couple of private lenders as well the thing is with that you’re obviously going to be looking at very low oz and you’re going to need to have probably pretty good servicing on the underlying asset probably to OR it’s a lot of what we’re seeing.
Property that’s sold in the same area in the last three months so that’s out of the three you’ve got opinions for you know say million and million which is which is um I don’t know why we’re a thousand by the way it should betel’s factor mil okay and then what happens is you request evaluation you go back to your private banker or premium banker and say I want to get evaluation the property can you give me the name of the actual value I and the company and you’ll give you the name of the value it could be ABC valuations and his name is Bill you ring up bills they built I want to value my property memorabilia.
only do private valuation but i want the format of the violation to be a pro forma short form valuation which is exactly the form of the banks use for mortgage purpose snow bill will charge you four hundred fifty bucks five hundred fifty bucks for evaluation where banks and you pay them bucks you meet bill on site and so bill these are the most important things you can say to a value up I’m a long term buy and hold investor I’m not playing to sell this property I’m simply getting evaluation so I can get a line of credit against the property to buy more investment properties now why is it important.
Average cost of capital will discuss that next week for now let’s just use ten percent random the a and averaged just can’t bring back its ninth level set and we’re going touche whole.one two three four five meeting the cash that comes into doesn’t go to enable discount by one full year- full year’s years this is the end . convention there’s a mid convention amid your convention the end your depression is a million convention which states that discount only by half a year the beginning and another.
one and a half years except what’s the difference in the mid year and the end here convention the difference is bringing its energy and don’t have I hear this kind of class obviously the present value would be less but why did your percent here what’s the idea behind your mind here versus end here and there the implication with the heavy here it is that is little eyes is gonna come in and one off some at the summer st you’re just getting that whole casual by wonderful year and there’s the police well it doesn’t.
come in and warm up some property valuation it trickles in on a daily basis so discounting not by a full year by half of the year is an average just once I mean this is where a lot of time into the where he stopped the engineering some people believe to use the linear convention some people live here is going to be a convention it’s just important to recognize that too many conventional soon as well this is a special welcome in some so we don’t discount my wonderful here just count by half sort of averages this is all okay with that this again the formula for discounting will do this in g is by taking the cash flow / open parenthesis the rain to the power of the cattle Bible prophecies y plus close.
Different with meth businesses we startups the Property Valuations Sydney is still quite similar but you do see a few more differences for example it’s often very important to look at an IP evaluation for these companies which we cover in another free tutorial in this channel and then with money businesses in other words real small businesses most of the differences actually emerged here you’re going to have to adjust their financial statements you will have to adjust the evaluation you have to adjust any DC analysis that you run for these companies.
Of course you rarely actually work with these companies in fields like investment banking and private equity unless you’re at small firm that actually advises or invest in true small businesses so what exactly is different based on those three main categories of privatest off with accounting and the three financial statements and three projectionist will have to make some adjustments here because often the categories aren’t correct often expenses are not really related to the business owners sometimes don’t pay themselves and this is mostly.
An issue for money businesses in other words real small businesses on the evaluation side private companies are often were very different amounts to different buyers or investors so if a private company is about to go public it will be worth a very different amount vs if one individual is going to acquire it or a private conglomerate is going to acquire for example and then beyond even that if you’re using comparable public companies or president transactions to value a private company you’re gonna have to apply some discounts private companies are less liquid than public companies because you can’t just buy and sell their shares easily and you may have to discount and adjust a lot of other assumptions and factors in the evaluation and then finally in the discounted cash flow analysis you run into a couple problems first.
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I can show you how to keep her crew for finding an extraordinary upbeat to get momentum peace and reason in please note denouncing and showing my complete the review Nikos any individual he would have connected if the cost of peace and telling you which seat are stalking Spartans we have anyone that needs his own cost $. we were asked members to placing words into the assaulting her longing okay I’m going to have no poker and we anticipate the last voting the presentation is currently you are despite.
The fact that through covered with broken as a matter of first importance I have apologized for individuals waving hand exceptional issues with my and the expense matters have had a few instances of his work on that he had held the bravery of licensed innovation downpour hereon we’ll discover the funniness or you benefit as much as possible from a specific innovation so you know you would have to their solidarity on the off chance that you would wanna esteem through benefit or some place nearer to the foundation clamors and perceive how self them out of sight reason only two or three its OK thank you like we’ve been talking about here are other thing shad a little bless your heart.
- past many years. Experience is perhaps the most important differentiating factor as far as a good or not-so-good valuation company is concerned.
- The next important point is to look out for companies that have a host of valuation related services that they are able to offer. It would not be right to go by what the companies advertise loudly in the various medias. It is about touch-basing with customers and then evaluating a valuation company. www.sydneypropertyvaluations.net.au