Valuation Report for ABC School System

March 2008

Table of Contents
 Important Notice

3

 Introduction & Background

4

 Valuation Methodology

5

 Valuation

6

 Assumptions

7

 Balance sheet Assumptions

8

 Profit & Loss Assumptions

10

 Projected Financial Statements

18

2

Introduction & Purpose of Report
 ABC school was established in 1997 by Ms N. Initially, ABC School was offering Pre-school education
catering to the needs of the Diplomatic Community, by providing high quality learning to their children.
However after September 11, 2001, foreign student population in ABC School significantly reduced which
forced the management to reconsider its target market; and realign itself towards providing services to the
local community. Provisions of high standard curriculum and constantly improving facilities have been the
main goal at ABC School which led to being a favored choice of parents, and thus became the main
reason for the development of ABC Primary School in 2001. Today in 2008, ABC School has already
expanded to a Secondary School, educating a student body of over 300 children. ABC School system is
segmented in two distinct categories - Pre-school and Primary School (Lower and Upper). The school is
conveniently located in XYZ area catering to a niche target market.

 Purpose of the study is to prepare financial projections based on financial statements and explanations
provided by the management of ABC School and conduct a valuation based on the projections to
determine an appropriate value for the School.

3

Valuation Methodology
Basis of Valuation

The valuation methodology is based on generally accepted method for valuation of
business and investment. The methodology used provides estimates of the
valuation based on information available and the underlying assumptions
Indicative valuation for ABC school has been undertaken using Discounted Cash
Flow (DCF) method on projected financial information for ABC prepared on the
basis of relevant assumptions

Discount Cash Flow

This DCF valuation method is based on the future earnings potential of the
company as it values the business by discounting the future cash flow stream from
the operations of the company at an appropriate discount rate . Key elements in
DCF valuation include:
– Forecasted free cash flows
– Terminal value
– Net Present Value
The discount rate used is estimated by adjusting the risk free rate of return with a
premium for market and business risk and equity risk. This helps compel an indepth understanding of the business by deriving values of product lines,
businesses and transactions

4

Estimated Value of the ABC School System
Amount in PKR
Discount Rate

Growth in Perpetuity

15%

16%

17%

18%

0%

152,411,088

141,693,582

132,270,282

123,924,244

1%

158,707,863

146,969,833

136,730,217

127,723,471

2%

165,973,373

152,999,835

141,784,809

131,997,601

3%

174,449,800

159,957,529

147,561,485

136,841,615

 On the basis of the valuation methodology adopted, an estimated value of the ABC School System would
be PKR 153 Million based on a discount rate of 16% and a growth in perpetuity factor of 2%. A complete
range of values for various discount rate estimates and varied growth in perpetuity factors is provided as
above

5

Assumptions
 This section of the report report provides an overview of the assumptions having a major impact on the
free cash flow method used in the valuation of ABC School.

 The projected financial information is based on information derived from the historical results of ABC
School and explanations provided by the management. As part of the valuation exercise assumptions
used therein have been based on our best understanding of market dynamics and long term strategic
outlook.

6

Balance Sheet Assumptions
Capital Expenditure
PKR '000'
1,500

Fixed Assets
PKR '000'
2,843

1,400

3,000
2,500

1,000

2,674
2,291

2,270
1,870

2,000
1,500

500

445

400

515
1,000

240
500

-

-

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

 It has been assumed that major capital expenditure will be incurred during 2010, where the management
expects to increase the number of students by offering new classes for O‘ levels, and increase the number of
sections for primary and secondary school - in light of this expansion the management plans to acquire new
rental premises, and the major capital expenditure will comprise of fixtures & fittings, computers, etc.

 Capital expenditure in the remaining years comprises primarily purchase of replacement assets for obsolete
and depreciated equipment

7

Depreciation
WDV
Particulars

Depreciation Rates

2008

2009

2010

2011

2012

814,125

813,667

1,433,209

1,342,750

1,269,292

1,076,898

887,674

838,449

629,225

405,000

44,202

49,231

47,760

29,910

7,060

Computers & Printers

575,841

292,218

109,095

93,595

84,795

Electric Fittings

123,723

92,792

141,861

122,931

104,000

Books

207,764

155,823

103,882

51,941

-

2,842,554

2,291,405

2,674,256

2,270,351

1,870,146

Furniture & fixtures
Office Equipment
Communication &
Telecom equipment

Total

Particulars

Rates

Furniture & fixtures

10%

Office Equipment

20%

Communication & Telecom
equipment

33%

Computers & Printers

33%

Electric Fittings

20%

Books

20%

 For the purpose of financial projections we have assumed that depreciation is charged to income
applying straight line method and full year depreciation is charged in the year of purchase.

8

Profit & Loss Assumptions
Total Revenue

Revenue- Break up

PKR '000'
120,000
97,094

100,000

100,000

77,709

80,000
60,000

105,558

PKR '000'
120,000
2,541

80,000

60,614

60,000

47,022

40,000
20,000

40,000

2,100
8,600

20,000

36,322

2,310
8,600

15,250

49,704

59,918

2009

2010

3,075

2,795
13,875

16,650

80,424

85,834

2011

2012

-

2008

2009

2010

2011

2012

2008

Tuition fees

Admission Fees

Club activities

 Total Revenue comprises of tuition fee, admission fee and income from club activities
 Income from club activities constitutes of after school activities such as Karate, Yoga and Health training
programmes for students and their parents
 Revenue has been projected based on our understanding of the market dynamics, past trends and
strategy of ABC School, the increase can be attributed to:
 Number of students, which are assumed to increase with increase in number of sections and grades
 Increase in admission fee and tuition fee per student, which is assumed to increase every two years
 Increase in number of classes, which will increase with addition of one grade each year over the projected period
up to grade 11
 Increase in number of sections per grade.

9

Revenue
Net Profit After Tax

Total Tuition Fee

PKR '000

PKR 000'

30,000
25,866

26,196

85,834

90,000

25,000

80,424

80,000

19,474

20,000
15,000

100,000

70,000

16,600

59,918

60,000

49,704

50,000

11,717

40,000

10,000

36,322

30,000
20,000

5,000

10,000

-

0

2008

2009

2010

2011

2012

2008

Total Income from Club Activities

2010

2011

2012

Total Admission Fee

PKR 000'

PKR 000'

3,500

3,075
2,795

3,000

18,000

16,650
15,250

16,000

13,875

2,541
2,500

2009

14,000

2,310
2,100

12,000

2,000

10,000

1,500

8,000

1,000

6,000

8,600

8,600

4,000

500

10

2,000

0

0

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Tuition Fees
The table below illustrates tuition fees per student and increase in tuition fees per student for each grade
over the projected period

Tuition fee per grade per month

Grade wise increase in tuition fee

Particulars

2008

2009

2010

2011

2012

Particulars

2008

2009

2010

2011

2012

Pre Nursery 1

5,500

6,500

6,500

7,500

7,500

Pre Nursery 1

-

1,000

-

1,000

-

Pre Nursery 2

6,500

7,500

7,500

8,500

8,500

Pre Nursery 2

-

1,000

-

1,000

-

Nursery 1

6,500

7,500

7,500

8,500

8,500

Nursery 1

-

1,000

-

1,000

-

Nursery 2

7,000

8,000

8,000

9,000

9,000

Nursery 2

-

1,000

-

1,000

-

Prep

8,200

10,200

10,200

12,200

12,200

Prep

-

2,000

-

2,000

-

Grade 1

8,800

10,800

10,800

12,800

12,800

Grade 1

-

2,000

-

2,000

-

Grade 2

8,800

10,800

10,800

12,800

12,800

Grade 2

-

2,000

-

2,000

-

Grade 3

9,200

11,200

11,200

13,200

13,200

Grade 3

-

2,000

-

2,000

-

Grade 4

9,700

11,700

11,700

13,700

13,700

Grade 4

-

2,000

-

2,000

-

Grade 5

9,700

11,700

11,700

13,700

13,700

Grade 5

-

2,000

-

2,000

-

Grade 6

9,700

11,700

11,700

13,700

13,700

Grade 6

-

2,000

-

2,000

-

Grade 7

9,700

12,700

12,700

15,700

15,700

Grade 7

-

3,000

-

3,000

-

Grade 8

9,700

12,700

12,700

15,700

15,700

Grade 8

-

3,000

-

3,000

-

Grade 9

-

15,000

15,000

18,000

18,000

Grade 9

-

3,000

-

3,000

-

Grade 10

-

-

18,000

21,000

21,000

Grade 10

-

-

-

3,000

-

Grade 11

-

-

-

18,000

18,000

Grade 11

-

-

-

3,000

-

11

Admission Fees
No. of admissions per grade
Particulars

Admission fee per new student

2008

2009

2010

2011

2012

Pre Nursery 1

20

20

20

20

20

Pre Nursery 2

20

20

20

20

20

150

PKR '000'

160

125

150

Nursery 1

10

10

10

10

10

Nursery 2

10

10

30

30

30

Prep

10

10

26

15

15

120

Grade 1

2

2

2

2

2

110

Grade 2

2

2

2

2

2

100

Grade 3

2

2

2

2

2

90

Grade 4

2

2

2

2

2

Grade 5

2

2

2

2

2

Grade 6

2

2

2

2

2

Grade 7

2

2

2

2

2

Grade 8

2

2

2

2

2

Grade 9

-

-

-

-

-

Grade 10

-

-

-

-

-

Grade 11

-

-

-

-

-

grades. Admissions in subsequent grades are

86

86

122

111

111

assumed on the basis of vacancies if existing

Total

140
130

100

80
2008

2009

2010

2011

2012

 It is assumed that the admission fee will be
increased in alternate years by PKR 25,000
 In line with the strategy of ABC School the bulk
of the students are admitted in pre-school

students leave
 It has been assumed that no admissions will be
taken in grades 9, 10 and 11

12

Student Population
The tables below illustrate the total of number of sections and total number of students per grade

Number of Sections per grade

Number of Students per Grade
2008

2009

2010

2011

2012

Pre Nursery 1

20

20

20

20

20

1

Pre Nursery 2

20

20

20

20

20

1

1

Nursery 1

20

20

20

20

20

2

2

2

Nursery 2

20

20

40

40

40

2

3

3

3

Prep

32

32

48

48

48

2

2

2

3

3

Grade 1

32

32

32

48

48

Grade 2

2

2

2

2

3

Grade 2

32

32

32

32

48

Grade 3

2

2

2

2

2

Grade 3

32

32

32

32

32

Grade 4

2

2

2

2

2

Grade 4

32

32

32

32

32

Grade 5

2

2

2

2

2

Grade 5

32

32

32

32

32

Grade 6

2

2

2

2

2

Grade 6

32

32

32

32

32

Grade 7

2

2

2

2

2

Grade 7

32

32

32

32

32

Grade 8

1

2

2

2

2

Grade 8

16

32

32

32

32

Grade 9

-

1

2

2

2

Grade 9

-

16

32

30

30

Grade 10

-

-

1

2

2

Grade 10

-

-

16

32

30

Grade 11

-

-

-

1

2

Grade 11

-

-

-

16

32

Particulars

2008

2009

2010

2011

2012

Pre Nursery 1

1

1

1

1

1

Pre Nursery 2

1

1

1

1

Nursery 1

1

1

1

Nursery 2

1

1

Prep

2

Grade 1

Particulars

13
As part of the expansion strategy the school plans to expand its operations by offering classes up to
O'levels and expand the student population for which it plans to increase the number of sections over the
projected period.

Administrative Expenses
Particulars

Assumptions

2008

2009

2010

2011

2012

Salaries & allowance

10 % increase per annum

Rent & rates

10% increase per annum and acquisition
of new premises in 2010 @ PKR 3.6 MN
per annum

16,806,000

20,697,000

26,754,300

33,208,722

38,944,085

Staff training

PKR 200,000 every year

5,001,500

5,501,650

9,651,815

10,616,997

11,678,696

200,000

200,000

200,000

200,000

200,000

School function

1 % of revenue

470,216

606,140

777,094

970,941

1,055,582

Electric & gas

3 % of revenue

1,410,648

1,818,420

2,331,282

2,912,823

3,166,746

Telephone charges

1 % of revenue

470,216

606,140

777,094

970,941

1,055,582

Stationary & photocopies

1.5 % of revenue

705,324

909,210

1,165,641

1,456,412

1,583,373

Internet expenses

0.1 % of revenue

47,022

60,614

77,709

97,094

105,558

Traveling expense

0.1 % of revenue

49,149

63,356

81,225

101,487

110,334

Software expenses

20 % of computer equipment in the year
purchased

20,000

-

30,000

20,000

22,000

Security expenses

0.5 % of revenue

235,108

303,070

388,547

485,471

527,791

Postage expenses

0.1 % of revenue

47,022

60,614

77,709

97,094

105,558

Entertainment expenses

0.5 % of revenue

235,108

303,070

388,547

485,471

527,791

Conveyance

0.1 % of revenue

47,022

60,614

77,709

97,094

105,558

Water charges

0.5 % of revenue

235,108

303,070

388,547

485,471

527,791

Book & subscription

1 % of revenue

470,216

606,140

777,094

970,941

1,055,582

Fees & subscription charges

PKR. 25,000/- per annum

25,000

25,000

25,000

25,000

25,000

Professional charges

1 % of revenue

470,216

606,140

777,094

970,941

1,055,582

Repairs & maintenance

10 % of cost of assets

359,050

383,050

523,050

487,507

526,507

Generator expense

10 % increase per annum

231,867

255,053

280,559

308,615

339,476

Advertising expenses

0.5 % of revenue

235,108

303,070

388,547

485,471

527,791

Bank charges

0.05 % of cash and bank balances

6,041

7,285

15,940

25,566

38,841

Others / miscellaneous

1 % of revenue

470,216

606,140

777,094

970,941

1,055,582

Depreciation

As per Capex Schedule

747,949

791,149

1,017,149

848,905

915,205

28,995,105

35,075,996

47,748,748

57,299,902

65,256,013

Total

14

Administrative Expenses
Payroll

Rent per annum

PKR '000'

45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-

PKR '000'

113

105
87

118

94

140

12,000

100

10,000

80

8,000

60

6,000

40

4,000

20

2,000

0
2008

2009

2010

Total Salaries

2011

14,000

120

2012

9,652

5,002

5,502

2008

2009

10,617

11,679

2010

2011

2012

Total Staff

 Increase in the number of teachers and other

 In light of ABC School expansion strategy the

employees is due to addition of new classes

management

for O’levels and increase in sections for

premises in FY 2010 at PKR 3.6 MN per annum

primary and secondary school.
 Currently there are two teachers per section

plans

to

acquire

new

rental

 Rent expense has been assumed to increase at
10% per annum.

for grades “Pre-Nursery 1 – Grade 5”, and
three teachers per section from Grade 6 –
Grade 11.
 Salaries have been assumed to increase at a
rate of 10% per annum

15

Payroll Expenses
Total number of Teachers
80

71

70

Staff monthly salaries
76

Principle

63

60

Vice Principle

53
47

50

Particulars

Helpers

2008

2009

2010

2011

2012

125,000

137,500

151,250

166,375

183,013

60,000

66,000

72,600

79,860

87,846

8,000

8,800

9,680

10,648

11,713

12,000

13,200

14,520

15,972

17,569

40

Management Staff

30

Non-management Staff

7,500

8,250

9,075

9,983

10,981

20

Security Guards

6,500

7,150

7,865

8,652

9,517

10

Pre Nursery 1

18,000

19,800

21,780

23,958

26,354

Pre Nursery 2

18,000

19,800

21,780

23,958

26,354

Nursery 1

18,000

19,800

21,780

23,958

26,354

Nursery 2

18,000

19,800

21,780

23,958

26,354

Prep

18,000

19,800

21,780

23,958

26,354

Grade 1

18,000

19,800

21,780

23,958

26,354

Grade 2

18,000

19,800

21,780

23,958

26,354

Grade 3

18,000

19,800

21,780

23,958

26,354

Grade 4

18,000

19,800

21,780

23,958

26,354

Grade 5

18,000

19,800

21,780

23,958

26,354

Grade 6

18,000

19,800

21,780

23,958

26,354

Grade 7

20,000

22,000

24,200

26,620

29,282

Grade 8

20,000

22,000

24,200

26,620

29,282

Grade 9

-

35,000

38,500

42,350

46,585

Grade 10

-

-

40,000

44,000

48,400

Grade 11

-

-

-

45,000

49,500

2008

2009

2010

2011

2012

Total Annual Salaries
PKR '000'

50,000
38,944

40,000

33,209
26,754

30,000
20,697
20,000

16,806

10,000
2008

2009

2010

2011

2012

16

Projected Balance Sheet Statement
Amount in PKR
Particulars
Fixed Assets (as per schedule attached)

2008

2009

2010

2011

2012

2,842,554

2,291,405

2,674,256

2,270,351

1,870,146

14,570,334

31,880,398

51,132,803

77,681,584

104,540,232

786,937

951,974

1,295,917

1,555,138

1,771,070

Total Current Assets

15,357,271

32,832,372

52,428,720

79,236,722

106,311,302

Total Assets

18,199,825

35,123,777

55,102,976

81,507,073

108,181,448

Accrued salaries

1,400,500

1,724,750

2,229,525

2,767,394

3,245,340

Total Current Liabilities

1,400,500

1,724,750

2,229,525

2,767,394

3,245,340

5,082,102

16,799,324

33,399,026

52,873,450

78,739,679

11,717,222

16,599,702

19,474,424

25,866,229

26,196,428

Closing Balance

16,799,324

33,399,026

52,873,450

78,739,679

104,936,107

Total Liabilities

18,199,825

35,123,777

55,102,976

81,507,073

108,181,448

Current Assets
Cash & Bank Balances
Deposits, Prepayments & Other Receivables

Capital & Liabilities
Current Liabilities

Capital Account
Opening balance
Add: Excess of receipts over expenditure
Less: Drawing & Taxes

17

Projected Profit & Loss Statement
Amount in PKR
Particulars

2008

2009

2010

2011

2012

36,321,600

49,704,000

59,918,400

80,424,000

85,833,600

Admission fee

8,600,000

8,600,000

15,250,000

13,875,000

16,650,000

Income from Club Activities

2,100,000

2,310,000

2,541,000

2,795,100

3,074,610

Total Revenue

47,021,600

60,614,000

77,709,400

97,094,100

105,558,210

Cost of Services

28,995,105

35,075,996

47,748,748

57,299,902

65,256,013

Net Profit Before Tax

18,026,495

25,538,004

29,960,652

39,794,198

40,302,197

6,309,273

8,938,301

10,486,228

13,927,969

14,105,769

11,717,222

16,599,702

19,474,424

25,866,229

26,196,428

Revenue
Tuition Fee

Tax expense
Net Profit After Tax

18

Projected Cash Flow Statements
Amount in PKR
Particulars

2008

2009

2010

2011

2012

18,026,495

25,538,004

29,960,652

39,794,198

40,302,197

747,949

791,149

1,017,149

848,905

915,205

18,774,444

26,329,153

30,977,801

40,643,103

41,217,402

(308,788)

(165,037)

(343,943)

(259,222)

(215,932)

(283,493)

(165,037)

(343,943)

(259,222)

(215,932)

Liabilities

(9,293,300)

324,250

504,775

537,869

477,947

Tax payments

(6,309,273)

(8,938,301)

(10,486,228)

(13,927,969)

(14,105,769)

2,888,378

17,550,064

20,652,405

26,993,781

27,373,648

Investments in operating fixed assets

(400,000)

(240,000)

(1,400,000)

(445,000)

(515,000)

Net Cash flows from Investing Activities

(400,000)

(240,000)

(1,400,000)

(445,000)

(515,000)

Increase / decrease in cash and cash
equivalents

2,488,378

17,310,064

19,252,405

26,548,781

26,858,648

Cash and cash equivalents at beginning of
period

12,081,956

14,570,334

31,880,398

51,132,803

77,681,584

Cash and cash equivalents at the end of
period

14,570,334

31,880,398

51,132,803

77,681,584

104,540,232

Cash Flow from Operating Activities
Profit before tax
Adjustment of non-cash charges
Depreciation
Working capital Changes
Increase / decrease in current assets
Deposits, Prepayments & Other Receivables
Advance Tax

25,295

Increase / decrease in current Liabilities

Net Cash flows from Operating Activities
Cash Flow from Investing Activities

19

Free Cash Flow and NPV
Amount in PKR
Particulars
EBT

2008

2009

2010

2011

2012

18,026,495

25,538,004

29,960,652

39,794,198

40,302,197

747,949

791,149

1,017,149

848,905

915,205

18,774,444

26,329,153

30,977,801

40,643,103

41,217,402

(6,309,273)

(8,938,301)

(10,486,228)

(13,927,969)

(14,105,769)

(400,000)

(240,000)

(1,400,000)

(445,000)

(515,000)

12,065,171

17,150,851

19,091,573

26,270,134

26,596,633

Add:
Depreciation
Gross Cash Flows

Less:
Cash Taxes Paid
Capital Expenditure
Free Cash Flows

Terminal Value

Total Cash Flow

Net Present Value (NPV)

189,975,949

12,065,171

17,150,851

19,091,573

26,270,134

216,572,582

152,999,835

20

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