Economy and Business Votes

This phrase of Antonio Machado should be a fundamental maxim for all investors.

Imagine you are an entrepreneur and has € 1,962,374. With the capital decided to create a pharmaceutical company. Buy a plant with machinery and pay for it € 2,485,033. To repay the facility and start business activity, request a long-term loan amounting to € 884,966 and a short-term credit € 423,632.

The capital credit available as we use it to start production and end of year there are 112,377 euros in inventory, receivables outstanding € 378,573 and € 294,990 current account.

At year end, the book value of the company is € 1,962,374, ie, if we pay our debts and sell assets we would be this amount as equity.

The business has generated revenue of € 1,036,814 and an operating profit EBITDA (EBITDA is a financial indicator is represented by an English acronym for “Earnings Before Interest, Taxes, Depreciation and Amortization.” From The Income Statement or State Income of a company) of 306,000 EUR. The turnover margin is above 30%. Net debt owed after subtracting cash amounts to a total of 686,900 euros, ie 2.24 times operating profit.

If the company has accounted for a value of 1,962,374 EUR, the business would increase the value of the company. In two and a half years could pay off debt in three years and generate added value € 1,000,000, which the company could be worth about € 3,000,000.

Another way to look at is valuing the business based on EBITDA. Rate our company at 10 times EBITDA, is a way of valuing the business very accepted and includes all the accounting analysis. A multiplier would be correct to say 10. Valuing a company 10 times its EBITDA is normal, and perhaps a conservative multiplier for a growing company. Valuing our company at 10 times EBITDA, also come to the conclusion that our pharmaceutical company worth 3,000,000 euros.

Another way to quickly assess a business would be more short-term business value in terms of net profit. The net result of our company give us significant divergence as to what the business really worth. EBITDA If we subtract the depreciation and amortization in the beginning of the activity is particularly high by strong investment and also have made for depreciation added caution, we have a total profit less relevant. Therefore, we prefer to set a multiplier to EBIT. With this more conservative valuation, we have a price range for determining the intrinsic value of the business. The EBIT of the business is € 129,000,000. Historically, our business could assess PER 15, which is the historical average price of the bags. Making an assessment to PER 15 the business is worth 1,935,000 euros, which incidentally is its book value. Either way, think that their business is worth between € 1,935,000 and € 3,000,000, is a wide enough range to make decisions. In a deal to sell his company, all that is selling below of 1,935,000 euros is a bad sale, and all that is selling over € 3,000,000 is a great sale.

Imagine you decide to get your business bag and spread over 245,000 shares. The ideal selling price would sell in the upper reaches of the assessment would be 12.24 euros. Selling in the lower mean some anxiety to sell your business, 7.89 euros per share. If we take into account the book value is EUR 8 per share, could determine the sale price depending on the liquidity needs we have.

Imagine that once dropped his business to the bag, it begins to fall due to financial crisis, following the financial crisis, you, being a company based in a country at risk of default, notice how the market fleeing of any investment that is related to their country, not stop undervaluing its business. However, within 3 years of worst financial crisis in history, you have met expectations and has done nothing to improve the assets of his company. But business, instead of being on the stretch € 12.24 – € 7.89, trading at 1.05 euros or 257,250 euros.

Amazed at being so lucky, boasts this business to acquire 90% below their real value or one-eighth of its book value. Moreover, wealth is such that you could buy the business and pay with what you have in the current account is € 294,990 and have 100% of your company, you could sell back into the bag in the range 7.89 EUR – € 12.24, as soon pass the crisis and investors panic dejasen side.

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