Professional Documents
Culture Documents
Business Valuation
123 Anywhere
Suite 540
CONFIDENTAL 08/18/2017
Synopsis
The following financial projections and business valuation assume the forward looking performance of
Acme Manufacturing Co, a business that specializes in the production of milk and sale to distributors and
wholesale buyers in North America. The projections were based on an analysis of the companys historical
financial performance including an analysis of its revenue streams and expense structure. All forward
looking statements are speculative based on the set of assumptions outlined within this document.
Overall, we believe that Acme Manufacturing Co. will continue to grow at a rate between 15 20% per
year after an additional investment of $1,500,000 from a private investor with a profit margin averaging
20%. The valuation within these projections was performed using a discounted cash flow analysis model
selecting the earnings multiples from three comparable manufacturers in the United States with assets
between $50 100 M and revenue less than $200 M.
Assumptions
1. The historical growth rate of the company has been between 25 35% per year, with the assumed
growth of the current product lines and the companys expected expansion into the Southwest
market, we expect this to continue at perpetuity but have assumed a slight declined to reflect the
increasingly competitive market.
3. The financials assume the roll-out of the future strategy plans as proposed by management for
ongoing expansion into the North American market. The complete request prepared that outlines
this strategy, more detailed resource allocation, and a timeline for implementation is available
upon request.
1
The cost of capital has been provided by management based on their current discussions with private investors
who will not have a dividend withdraw and anticipate a five year holding period.
A total of $1,500,000 is forecasted with an estimated $300,000 to acquire equipment and modify the
factory with an additional $250,000 for equipment and the remainder going into operating expenses and
raw inventory acquisition. 2 Startup costs are considered pre-revenue expenses that are incurred prior to
operations.
Capital Allocation
Cash on Hand
Equipment
Building Acquisition
Construction Costs
2
Raw inventory acquisition consist of inventory for the increased assembly line including but not limited to
unprocessed dairy milk, plastic containers, and chemicals for homogenization.
The financial highlights provide an overview of the companys projected performance in thousands over
a twelve month period and over the next five years. The company expects a negative cashflow for at least
the first quarter as it invests in new operations, sales & marketing channels to increase growth.
Gross Margin/Revenue 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60%
EBITDA/Revenue -1538% -739% -339% -140% -40% -17% 1% 15% 25% 31% 36% 40% 7% 17% 22% 24% 25%
Net Profit/Revenue -1597% -769% -354% -147% -44% -20% -1% 13% 24% 30% 35% 39% 5% 16% 22% 24% 24%
Net Cash Flow (77) (74) (68) (56) (32) (17) 1 26 57 85 118 157 119 551 1417 2284 3150
Cash Balance - Ending 729 655 587 531 499 482 483 508 566 650 768 925 925 1476 2893 5177 8326
12000 12000
Revenue
10000 10000
6000 6000
EBITDA
4000 4000
0 0
Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 Year 4 Year 5
Projected Cash Flow By Year ($000) Projected Net Income By Year ($000)
9000 3500
8000 3000
7000
Net Cash Flow 2500
6000
5000 2000
4000 1500
3000
Cash Balance 1000
2000
1000 500
0 0
Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 Year 4 Year 5
The company expects a consistent gross margin given its manufacturing services with a consistent sale
and a net profit margin ranging to average between 20 25% once the company reverts back to its prior
margins after investing into the growth and expansion of its new product line and geographic expansion.
Financial Indicators
Year 1 Year 2 Year 3
Profitability %'s:
Gross Margin 60% 60% 60%
Net Profit Margin 5% 16% 22%
EBITDA to Revenue 7% 17% 22%
Return on Assets 5% 25% 40%
Return on Equity 5% 25% 40%
Financial Indicators
70%
50%
Net Profit Margin
40%
30%
EBITDA to Revenue
20%
0%
Year 1 Year 2 Year 3
The revenue forecast provides a distribution of the projected unit sales and the associated price per unit.
The expectation is that the company will continue to invest in wholesale orders distributors to enable it
to focus on higher volumes of sales.
Revenue Forecast
Year 1 Year 2 Year 3 Year 4 Year 5
Assumptions
Pallat 359,296.72 636,685.06 1,273,370.12 1,910,055.18 2,546,740.24
1 Gallon 898,241.79 1,591,712.65 3,183,425.30 4,775,137.96 6,366,850.61
1/2 Gallon 538,945.08 955,027.59 1,910,055.18 2,865,082.77 3,820,110.36
Revenue Forecast
Wholesale Milk Sales 1,796,484 3,183,425 6,366,851 9,550,276 12,733,701
Total Revenue $ 1,796,484 $ 3,183,425 $ 6,366,851 $ 9,550,276 $ 12,733,701
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
The projected profit and loss includes both gross margin related expenses4. Other expenses will be
incurred regardless of the companys financial position and include advertising and marketing related
expenses aggressively for the first three years for the product launch, along with rent expense that is
already being incurred from the companys existing location, but will need to acquire a larger facility for
the additional production line.
Expenses
Professional Services 9,600 9,734 19,469 29,203 38,937
Utilities & Telephone 4,800 4,867 9,734 14,602 19,469
Office Expenses & Supplies 7,200 7,301 14,602 21,902 29,203
Repair & Maintainence 14,400 14,602 29,203 43,805 58,406
Advertising 240,000 445,680 891,359 1,337,039 1,782,718
Auto, Delivery, and Travel 14,400 14,602 29,203 43,805 58,406
Accounting and Legal 5,400 5,476 10,951 16,427 21,902
Rent Expense 480,000 486,718 973,436 1,460,154 1,946,872
Insurance 9,000 9,126 18,252 27,378 36,504
Social Media 4,080 4,137 8,274 12,411 16,548
Shipping 4,800 4,867 9,734 14,602 19,469
Misc. SG&A 24,000 31,834 63,669 95,503 127,337
Total Operating Expenses $ 817,680 $ 1,038,943 $ 2,077,886 $ 3,116,829 $ 4,155,772
Wages & Payroll 141,000 320,177 324,902 329,769 334,782
Depreciation, Amortization & Taxes 35,714 35,714 35,714 35,714 35,714
Net Income $ 83,496 $ 515,221 $ 1,381,608 $ 2,247,854 $ 3,113,953
Net Income/Revenue 5% 16% 22% 24% 24%
Revenue By Year
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Year 1 Year 2 Year 3 Year 4 Year 5
4
Gross margin expenses include unprocessed milk, additives for flavored milk, containers for shipping and product
storage, and estimated allocated utilities associated with production storage and operating the processing
machinery.
The projected cash flow reflects a short holding period of inventory and raw goods since most of the
products will be acquired, sold, and delivered to the business buyer within thirty days. Therefore, very
little inventory spoilage should take place and will occur on the retail side.5
Cash Outflows
Investing Activities
New Fixed Assets Purchases $ - $ - $ - $ - $ -
Inventory Addition to Bal.Sheet $ - $ - $ - $ - $ -
Cost of Sales $ 718,593 $ 1,293,468 $ 2,198,896 $ 3,078,454 $ 3,694,145
Operating Activities
Salaries and Wages $ 141,000 $ 320,177 $ 324,902 $ 329,769 $ 334,782
Fixed Business Expenses $ 817,680 $ 1,055,341 $ 1,794,080 $ 2,511,712 $ 3,014,054
Taxes $ - $ - $ - $ - $ -
Financing Activities
Loan Payments $ - $ - $ - $ - $ -
Line of Credit Interest $ - $ - $ - $ - $ -
Line of Credit Repayments $ - $ - $ - $ - $ -
Dividends Paid $ - $ - $ - $ - $ -
Year 1 Cash
1,000,000
800,000
400,000
200,000
Cash Balance
-
Month 3
Month 1
Month 2
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
(200,000)
5
The company requires a purchasing order to be secured before the transaction so that it may prepare its
inventory in advance all business customers pay within thirty-days, most are collected within 14 weeks.
The projected balance sheet is based upon the companys additional fixed assets post-financing for the
new assembly line. After the acquisition of the new assets, the company has assumed that there will be
no dividend draw and it will be re-invested back into the company. The beginning cash balance has been
derived from the Cash on Hand on the post-financing summary such that it will be available to cover fixed
operating expenses prior to launch.
Long-term Assets
Long-term Assets $ 300,000 $ 300,000 $ 300,000 $ 300,000 $ 300,000
Accumulated Depreciation $ 35,714 $ 71,429 $ 107,143 $ 142,857 $ 178,571
Total Long-term Assets $ 264,286 $ 228,571 $ 192,857 $ 157,143 $ 121,429
Total Assets $ 1,583,495 $ 2,112,465 $ 3,256,113 $ 4,996,600 $ 7,153,268
Long-term Liabilities $ - $ - $ - $ - $ -
Total Liabilities $ - $ - $ - $ - $ -
The sensitivity analysis assumes a standard deviation in revenue of 15% over a five year period to
demonstrate the companys ability to perform under less than projected performance. Over the course
of the past three years, the company has had no more than a deviation of 12% revenue and therefore, it
is reasonable to assume that growth will either continue or remain stagnant.
Revenue
$12,000,000
$8,000,000
$4,000,000
$-
Year 1 Year 2 Year 3 Year 4 Year 5
The break-even analysis has been performed using the weighted average sale price and production price
to support the new assembly line. The fixed costs presented include all operating and overhead related
expenses specific to the new assembly line that are unavoidable for the companys new line, the entitys
existing operations has not been considered in this calculation.
Breakeven Analysis
$3,500,000
$3,000,000
COST-VOLUME-PROFIT
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
1000000
1100000
1200000
1300000
1400000
1500000
1600000
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
NET UNITS
A discounted cash flow model was used with comparables retrieved from companies that have a similar
capital structure and revenue volume. The valuation has been conducted based on the new business unit
from the additional assembly line as if the company were to spin-off the unit at the end of a five year
period.
Acme X was acquired by Acme Y for a total of $2.0 B with total earnings of $200 M before interest
and taxes, the acquire was a producer of fruit based beverages sold to wholesalers directly and
through distributors with $15 M in fixed assets and $500 M in revenue.
Acme C was acquired by Acme D for a total of $500 M with total earnings of $50 M before interest
and taxes, the acquire was a producer of dairy milk sold to wholesalers directly and through
distributors with $5 M in fixed assets and $125 M in revenue.
Acme F was acquired by Acme E for a total of $1.3 B with total earnings of $130 M before interest
and taxes, the acquire was a farmer and producer of dairy milk sold to wholesalers directly and
through distributors with $12 M in fixed assets and $110 M in revenue.
EBITDA Margin
Gross Margin $ 3,000 $ 6,000 $ 12,000 $ 24,000 $ 48,000 $ 62,400 $ 81,120 $ 105,456 $ 137,093 $ 164,511 $ 197,414 $ 236,896
Gross Margin/Revenue 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60%
Expenses
Professional Services 800 800 800 800 800 800 800 800 800 800 800 800
Utilities & Telephone 400 400 400 400 400 400 400 400 400 400 400 400
Office Expenses & Supplies 600 600 600 600 600 600 600 600 600 600 600 600
Repair & Maintainence 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200
Advertising 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000
Auto, Delivery, and Travel 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200
Accounting and Legal 450 450 450 450 450 450 450 450 450 450 450 450
Rent Expense 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000
Insurance 750 750 750 750 750 750 750 750 750 750 750 750
Social Media 340 340 340 340 340 340 340 340 340 340 340 340
Shipping 400 400 400 400 400 400 400 400 400 400 400 400
Misc. SG&A 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000
Total Operating Expenses $ 68,140 $ 68,140 $ 68,140 $ 68,140 $ 68,140 $ 68,140 $ 68,140 $ 68,140 $ 68,140 $ 68,140 $ 68,140 $ 68,140
EBIT $ (65,140) $ (62,140) $ (56,140) $ (44,140) $ (20,140) $ (5,740) $ 12,980 $ 37,316 $ 68,953 $ 96,371 $ 129,274 $ 168,756
EBIT/Revenue -1303% -621% -281% -110% -25% -6% 10% 21% 30% 35% 39% 43%
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Revenue 200,000 210,000 220,500 231,525 243,101 255,256 268,019 281,420 295,491 310,266 325,779 342,068
Subtotal Cost of Revenue 80,000 84,000 88,200 92,610 97,241 102,103 107,208 112,568 118,196 124,106 130,312 136,827
Total Cost of Revenue $ 80,000 $ 84,000 $ 88,200 $ 92,610 $ 97,241 $ 102,103 $ 107,208 $ 112,568 $ 118,196 $ 124,106 $ 130,312 $ 136,827
Gross Margin $ 120,000 $ 126,000 $ 132,300 $ 138,915 $ 145,861 $ 153,154 $ 160,811 $ 168,852 $ 177,295 $ 186,159 $ 195,467 $ 205,241
Gross Margin/Revenue 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60%
Expenses
Professional Services 811 811 811 811 811 811 811 811 811 811 811 811
Utilities & Telephone 406 406 406 406 406 406 406 406 406 406 406 406
Office Expenses & Supplies 608 608 608 608 608 608 608 608 608 608 608 608
Repair & Maintainence 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217
Advertising 37,140 37,140 37,140 37,140 37,140 37,140 37,140 37,140 37,140 37,140 37,140 37,140
Auto, Delivery, and Travel 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217
Accounting and Legal 456 456 456 456 456 456 456 456 456 456 456 456
Rent Expense 40,560 40,560 40,560 40,560 40,560 40,560 40,560 40,560 40,560 40,560 40,560 40,560
Insurance 760 760 760 760 760 760 760 760 760 760 760 760
Social Media 345 345 345 345 345 345 345 345 345 345 345 345
Shipping 406 406 406 406 406 406 406 406 406 406 406 406
Misc. SG&A 2,653 2,653 2,653 2,653 2,653 2,653 2,653 2,653 2,653 2,653 2,653 2,653
Total Operating Expenses $ 86,579 $ 86,579 $ 86,579 $ 86,579 $ 86,579 $ 86,579 $ 86,579 $ 86,579 $ 86,579 $ 86,579 $ 86,579 $ 86,579
EBIT $ 33,421 $ 39,421 $ 45,721 $ 52,336 $ 59,282 $ 66,575 $ 74,233 $ 82,273 $ 90,716 $ 99,581 $ 108,889 $ 118,662
Figure 12: Year 2 - 12 Month P&L
EBIT/Revenue 17% 19% 21% 23% 24% 26% 28% 29% 31% 32% 33% 35%
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Revenue 400,000 420,000 441,000 463,050 486,203 510,513 536,038 562,840 590,982 620,531 651,558 684,136
Subtotal Cost of Revenue 160,000 168,000 176,400 185,220 194,481 204,205 214,415 225,136 236,393 248,213 260,623 273,654
Total Cost of Revenue $ 160,000 $ 168,000 $ 176,400 $ 185,220 $ 194,481 $ 204,205 $ 214,415 $ 225,136 $ 236,393 $ 248,213 $ 260,623 $ 273,654
Gross Margin $ 240,000 $ 252,000 $ 264,600 $ 277,830 $ 291,722 $ 306,308 $ 321,623 $ 337,704 $ 354,589 $ 372,319 $ 390,935 $ 410,481
Gross Margin/Revenue 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60%
Expenses
Professional Services 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622
Utilities & Telephone 811 811 811 811 811 811 811 811 811 811 811 811
Office Expenses & Supplies 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217
Repair & Maintainence 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434
Advertising 74,280 74,280 74,280 74,280 74,280 74,280 74,280 74,280 74,280 74,280 74,280 74,280
Auto, Delivery, and Travel 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434 2,434
Accounting and Legal 913 913 913 913 913 913 913 913 913 913 913 913
Rent Expense 81,120 81,120 81,120 81,120 81,120 81,120 81,120 81,120 81,120 81,120 81,120 81,120
Insurance 1,521 1,521 1,521 1,521 1,521 1,521 1,521 1,521 1,521 1,521 1,521 1,521
Social Media 690 690 690 690 690 690 690 690 690 690 690 690
Shipping 811 811 811 811 811 811 811 811 811 811 811 811
Misc. SG&A 5,306 5,306 5,306 5,306 5,306 5,306 5,306 5,306 5,306 5,306 5,306 5,306
Total Operating Expenses $ 173,157 $ 173,157 $ 173,157 $ 173,157 $ 173,157 $ 173,157 $ 173,157 $ 173,157 $ 173,157 $ 173,157 $ 173,157 $ 173,157
EBIT $ 66,843 $ 78,843 $ 91,443 $ 104,673 $ 118,564 $ 133,150 $ 148,466 $ 164,547 $ 181,432 $ 199,162 $ 217,778 $ 237,324
EBIT/Revenue 17% 19% 21% 23% 24% 26% 28% 29% 31% 32% 33% 35%
Cash Received
Revenue
$ 5,000.0 $ 10,000.0 $ 20,000.0 $ 40,000.0 $ 80,000.0 $ 104,000.0 $ 135,200.0 $ 175,760.0 $ 228,488.0 $ 274,185.6 $ 329,022.7 $ 394,827.3
New Current Borrowing
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
New Long-Term Liabilities
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Expenditures
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Cash Received
Revenue
$ 200,000.0 $ 210,000.0 $ 220,500.0 $ 231,525.0 $ 243,101.3 $ 255,256.3 $ 268,019.1 $ 281,420.1 $ 295,491.1 $ 310,265.6 $ 325,778.9 $ 342,067.9
New Current Borrowing
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
New Long-Term Liabilities
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Sale of Other Current Assets
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Sale of Long-Term Assets
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
New Investment Received
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Subtotal Cash Received
$ 200,000.0 $ 210,000.0 $ 220,500.0 $ 231,525.0 $ 243,101.3 $ 255,256.3 $ 268,019.1 $ 281,420.1 $ 295,491.1 $ 310,265.6 $ 325,778.9 $ 342,067.9
Expenditures
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Cash Received
Revenue
$ 400,000.0 $ 420,000.0 $ 441,000.0 $ 463,050.0 $ 486,202.5 $ 510,512.6 $ 536,038.3 $ 562,840.2 $ 590,982.2 $ 620,531.3 $ 651,557.9 $ 684,135.7
New Current Borrowing
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
New Long-Term Liabilities
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Sale of Other Current Assets
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Sale of Long-Term Assets
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
New Investment Received
$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Subtotal Cash Received
$ 400,000.0 $ 420,000.0 $ 441,000.0 $ 463,050.0 $ 486,202.5 $ 510,512.6 $ 536,038.3 $ 562,840.2 $ 590,982.2 $ 620,531.3 $ 651,557.9 $ 684,135.7
Expenditures
Days on Market the time in days from the date the business is
listed for sale until the transaction closes.
Median the mid-range value with half of the values in the set
falling below it and another half being above it. For the business
selling price, the median price means that 50% of the business
sales were done at prices below the median, and the remaining
50% of the sales had prices above the median.
and earnouts.
expenses.
the buyer.
equals the total invested capital divided by the firms gross profit.
equals the total invested capital divided by the business net sales.