Intrinsic Value - Spreadsheet

DCF Exercise
Completed DCF Exercise
A B C D E F G

1 PLEASE MAKE A COPY!! DO NOT EDIT THIS TEMPLATE

2 Company Information: Input in Yellow Cells
3 SIMPLE DISCOUNTED CASH FLOW MODEL & RELATIVE VALUATION
4 Company Name: apl
5 Company Ticker: AAPL => Go to finance.yahoo.com and type a company n
6 Share Price on Valuatio $126.65 => Use the Stock Price, that is below the company
7 Diluted Shares Outstan 1,340.00 => Click on "Key Statistics" and under the "Share S
8

9 Discounted Cash Flows (DCF) Analysis

10 Go to finance.yahoo.com
11 Most Recent Revenue 30,67.0 => On "Key Statistics" page enter "Revenue (ttm)",
12 Most Recent Net Incom 53,390.00 => On "Key Statistics" page enter "Net Income avl
13 Most Recent Free Cash 55,860.00 => On "Key Statistics" page enter "Levered Free C
14 Key Assumptions: => Play Around with different assumptions of growth rates (check out how it
15 Growth rate for next 5 10% => How fast you expect the company's earnings to
16 Terminal Growth Rate 4% => How fast you expect the company's earnings to
17 Discount Rate 10% => In most cases this is 10-12%, and represents th
18 1 2 3 4
19 Projected Annual Forecast
20 Period Actual Future Yr 1 Future Yr 2 Future Yr 3 Future Yr 4
21 Revenue $5,000.00 $5,500.00 $6,050.00 $6,655.00 $7,320.50
22 Revenue Growth Rate ( 10.00% 10.00% 10.00% 10.00%
23 Net Incom $53,390.00 $550.00 $605.00 $665.50 $732.10
24 Net Margi 0.1 10.00% 10.00% 10.00% 10.00%
25 Cash Flow 55,860.00 $495.00 $544.50 $599.00 $658.80
26 Cash Flow 0.09 9.00% 9.00% 9.00% 9.00%
27
28 Unlevered $55,860.00 $495.00 $544.50 $599.00 $658.80
29 Discount Rate 10.00% 10.00% 10.00% 10.00%
30 Discounted Cash Flows $450.00 $450.00 $450.00 $450.00
31 Sum of pr $9,416.20 Year 1 Year 2 Year 3 Year 4
32 Shares Ou 1,340.00 $495.00 $544.50 $599.00 $658.80
33 Intrinsic $7.00 => This is your estimate of how much the stock is worth using t
34 Currrent 126.7
35 Upside Po -94.50% Company: apl Graph of Future Cas
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53 Relative Valuation Analysis

54
55 Comparab P/E Ratio => P/E Ratio is the most common metric to for relative valuation
56 apl 3.2 => P/E Ratio is the Share Price / (Net Income divided by # of S
57 Google 32.2 => On Yahoo Finance, "Competitors" tab pulls up other compan
58 Samsung E 9.1 => Knowing that Samsung is the major smartphone competitor,
59 HP 4.8 Companies with low earnings visibililty tend to trade at low P
60 Microsoft 31.1 => Companies with high earnings growth tend to trade at high P
61 Comparab 16.1 => The average of the industry
62 1 2 3 4
63 Deserved 0% => Does your company deserve to trade at a discount or premi
64 Target P/ 16.1 => Your estimate of what you feel the company is "worth" on a
65

66 Projected Annual Forecast

67 Period Actual Future Yr 1 Future Yr 2 Future Yr 3 Future Yr 4
68 Revenue $5,000.00 $5,500.00 $6,050.00 $6,655.00 $7,320.50
69 Net Incom $53,390.00 $550.00 $605.00 $665.50 $732.10
70 Earnings $39.84 $0.41 $0.45 $0.50 $0.55
71
72 Intrinsic 8 => This is your estimate of how much the stock is worth using t
73 Currrent 126.7
74 Upside Pot -93.70%
 H I J K L M N O P

TEMPLATE

LATIVE VALUATION

yahoo.com and type a company name and the ticker will pull up
Price, that is below the company name
Statistics" and under the "Share Statistics" Column use the "Shares Outstanding" number, in millions

stics" page enter "Revenue (ttm)",ttm means trailing-twelve-months, in millions

stics" page enter "Net Income avl to Common (ttm)', in millions
stics" page enter "Levered Free Cash Flow (ttm)", in millions
s of growth rates (check out how it changes the Intrinsic Value and the Cash Flow Chart)
expect the company's earnings to grow on average each year for the next 5 years
expect the company's earnings to grow after 5 years to perpetuity
this is 10-12%, and represents the company's cost of capital. In most cases just leave this constant.
5 6 7 30 8
Projected Annual Forecast
Future Yr 5 Future Yr 6 Future Yr 7 => Terminal Value
$8,052.60 $8,374.70 $8,709.60 $9,058.00
10.00% 4.00% 4.00% 4.00%
$805.30 $837.50 $871.00 $905.80
10.00% 10.00% 10.00% 10.00% => % of Profits per Revenue. Can the company k
$724.70 $753.70 $783.90 $815.20
9.00% 9.00% 9.00% 9.00% => % of Cash earned for every dollar of Revenue

$724.70 $753.70 $783.90 $13,587 => Sum of all future cash flows after Yr 7
10.00% 10.00% 10.00% 10.00% => Discounted back to present value at a discoun
$450.00 $425.50 $402.20 $6,338.50 => The value of the Cash Flow today
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13
$724.70 $753.70 $783.90 $815.20 $847.80 $881.70 $917.00 $953.70 $991.80
w much the stock is worth using the Discounted Cash Flows method!

: apl Graph of Future Cash Flows

mon metric to for relative valuation. P/E ratios on average vary between 5 to 30.
ce / (Net Income divided by # of Shares Outstanding)
petitors" tab pulls up other companies in the industry.
the major smartphone competitor, add them as well
ngs visibililty tend to trade at low P/E
ngs growth tend to trade at high P/E

5 6 7 30 8
ve to trade at a discount or premium to their peers? Do they have higher / lower margins? Are they growing faster / slower? Are
feel the company is "worth" on a P/E basis. A bad company may get only 5, average 15, and the best company may get 30 P/E

recast
Future Yr 5
$8,052.60
$805.30
$0.60 => Use earnings per share 3 Yrs in the future

w much the stock is worth using the relative valuation method!

 Q R S T U V W X

venue. Can the company keep their margins over time?

for every dollar of Revenue

ash flows after Yr 7

o present value at a discount rate, Cash today is worth more than cash tomorrow
ash Flow today
Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21
$1,031.50 $1,072.80 $1,115.70 $1,160.30 $1,206.70 $1,255.00 $1,305.20 $1,357.40
 growing faster / slower? Are they more / less sustainable?
est company may get 30 P/E Ratio
 Y Z

Year 22 Year 23
$1,411.70 $1,468.20
Intrinsic Value - Spreadsheet
DCF Exercise
Completed DCF Exercise
A B C D E F G

1 WALL STREET PREP - FINANCIAL MODELING QUICK LESSON - BUILDIN

2
3 Valuation Date: 1/1/2013
4 Share Price on Valuatio $25.00
5 Diluted Shares Outstan 500
6

7 Select Operating Data

8 Projected Annual Forecast
9 2010A 2011A 2012A 2013P 2014P
10 Revenue $5,300.00 $5,700.00 $6,000.00 $6,600.00 $7,326.00
11 Revenue Growth Rate (%) 10.00% 11.00%
12
13 EBITDA $2,000.00 $2,080.00 $2,150.00 $2,310.00 $2,564.10
14 EBITDA Margin (%) 35.00% 35.00%
15
16 EBIT 1,700.00 1,750.00 1,800.00 $1,980.00 $2,197.80
17 EBIT Margin (%) 30.00% 30.00%
18
19 Depreciati $300.00 $330.00 $350.00 $369.60 $388.30
20 D&A as a % of revenue 5.60% 5.30%
21

22 Select Balance Sheet And Other Data

23 Projected Annual Forecast
24 2010A 2011A 2012A 2013P 2014P
25 Cash $700.00 $1,000.00 $1,500.00 1,500.00 1,500.00
26 Accounts 1,100.00 1,250.00 1,350.00 1,485.00 1,648.40
27 Inventorie 900 925 935 949 1,001.20
28 Prepaid E 50 63 75 89.7 106.5
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30 Accounts $930.00 $960.00 $1,000.00 $1,015.00 $1,070.80
31 Accrued E 90 88 93 102.3 113.6
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33 Debt 2,300.00 4,750.00 4,250.00 4,250.00 4,250.00
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35 Gross PP& 455 488 535 588.5 653.2
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37 Accounts Receivable Growth (%) 10.00% 11.00%
38 Inventories Growth (%) 1.50% 5.50%
39 Prepaid Expenses Growth (%) 19.60% 18.70%
40 Accounts Payable Growth (%) 1.50% 5.50%
41 Accrued Expenses Growth (%) 10.00% 11.00%
42 Capital Expenditures Growth (%) 10.00% 11.00%
43

44 Free Cash Flow Buildup

45 $mm Projected Annual Forecast
46 2010A 2011A 2012A 2013P 2014P
47 Period 1 2
48 Total Revenues $6,600.00 $7,326.00
49 EBITDA 2,310.00 2,564.10
50 EBIT 1,980.00 2,197.80
51 Tax rate 40.00% 40.00%
52 EBIAT $1,188.00 $1,318.70
53 Depreciation & Amortization 369.6 388.3
54 Accounts receivable -135 -163.4
55 Inventories -14 -52.2
56 Prepaid expenses -14.7 -16.8
57 Accounts payable 15 55.8
58 Accrued expenses 9.3 11.3
59 Capital expenditures -53.5 -64.7
60 Unlevered free cash flows $1,364.70 $1,477.00
61 Discount Rate (WACC) 12.00% 12.00%
62 Present value of free cash flows $1,218.60 $1,177.70
63 Sum of pr $5,744.30
64

65 Terminal Value
66 Growth in perpetuity method:
67 Long term 4.00%
68 WACC 12.00%
69 Free cash 2,052.80
70 Terminal 25,706.30
71 Present V $14,595.80
72

73 WACC
74 Share Price $25.00
75 Diluted Shares Outstan 500
76 Cost of Debt 5.20%
77 Tax Rate 40.00%
78 After-tax Cost of Debt 3.10%
79 Cost of Equity 15.00%
80
81 Total Debt ($) $4,250.00
82 Total Equity ($) 12,500.00
83 Total Capital $16,750.00
84
85 Debt Weighting 25.40%
86 Equity Weighting 74.60%
87
88 WACC = 12.00%
89

90 Enterprise Value to Equity Value

91 Enterprise Value $20,340.10
92 Less: Net debt 2,750.00
93 Equity Value $17,590.10
94 Diluted Shares Outstan 500
95 Equity Value Per Share $35.18
96
97 Q: If the stock is trading at $25.00 a share and you believe that your DCF analysis is accu
98 A: Buy, because according to intrisic valuation, stock should actually be valued at $29.99
 H I J

ICK LESSON - BUILDING A SIMPLE DISCOUNTED CASH FLOW MODEL

Projected Annual Forecast

2015P 2016P 2017P
$8,205.10 $9,271.80 $10,477.10
12.00% 13.00% 13.00%

$2,871.80 $3,245.10 $3,667.00

35.00% 35.00% 35.00%

$2,461.50 $2,781.50 $3,143.10

30.00% 30.00% 30.00%

$336.40 $435.80 $461.00

4.10% 4.70% 4.40%

Projected Annual Forecast

2015P 2016P 2017P
1,500.00 1,500.00 1,500.00
1,846.20 2,086.20 2,357.40
1,092.30 1,200.50 1,319.30
123.1 139.1 160.4

$1,168.30 $1,283.90 $1,411.00

127.2 143.7 162.4

4,250.00 4,250.00 4,250.00

731.6 826.7 934.2

12.00% 13.00% 13.00%

9.10% 9.90% 9.90%
 15.60% 13.00% 15.30%
9.10% 9.90% 9.90%
12.00% 13.00% 13.00%
12.00% 13.00% 13.00%

Projected Annual Forecast

2015P 2016P 2017P
3 4 5
$8,205.10 $9,271.80 $10,477.10
2,871.80 3,245.10 3,667.00
2,461.50 2,781.50 3,143.10
40.00% 40.00% 40.00%
$1,476.90 $1,668.90 $1,885.90
336.4 435.8 461
-197.8 -240 -271.2
-91.1 -108.1 -118.8
-16.6 -16 -21.3
97.4 115.7 127.1
13.6 16.5 18.7
-78.4 -95.1 -107.5
$1,540.50 $1,777.60 $1,973.90
12.00% 12.00% 12.00%
$1,096.90 $1,130.30 $1,120.70
hat your DCF analysis is accurate, would you buy or sell stock in this company? Why?
ld actually be valued at $29.99 but market value is $25.00. Therefore, the stock is "cheap."