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 | Contact Energy Sample Model |
| Growth Rate Levered vs. Unlevered Firm - Teaching Model |
| Valuation of High Growth Companies |
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Contact Energy Sample Model »download |
This model shows two approaches to develop a pro-forma company financials. The sheets SIMPLE1...4 are a basic version, modeling income statement and balance sheet only. The sheet "ENHANCED" shows a more sophisticated model that includes the cash flow statement. For both versions the financials drive a DCF valuation model. The enhanced model also contains an illustration of EVA and credit analysis. Each year while I use this for teaching I update the enhanced model with the most recent data reported.
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Growth Rate Estimation (teaching model) »download |
A key parameter in any valuation model are growth assumptions, particularly with regard to the terminal cash flow. This teaching model derives and visualizes the relationship between the growth rate of a levered vs. an unlevered firm.
This is a screenshot of the model:
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Valuation of High Growth Companies »download |
This model is an pure Excel implementation of a model described by Schwartz and Moon 2000 in their paper "Rationale Pricing of Internet Companies". The tech bubble has burst in the meantime but the approach is very illustrative (though not too practical) for any kind of high growth company. Schwartz/Moon propose a simulation approach with both revenue and growth of revenue being stochastic processes whose volatility and mean approach some long-term equilibrium. After all, such high growth companies often exhibit growth rates that cannot possibly be maintained in the long-run.
Each time the user presses F9 (recalculate), a new scenario is simulated. In many instances the company will not generate enough funds to finance its growth strategy (initial cash resources are used up) and it will go bankrupt as indicated by a bankruptcy line. Model parameters are in the yellow shaded field and can be modified.Have a look at some sample scenarios generated with this Excel model.
Revision 23 April 2005:
Thanks to Paul Fieten (paul.fieten@nl.ey.com) who found an error in the model. The simulation of mt missed a reference to the previously simulated value.Article source: Schwartz, Eduardo S. Moon, Mark. Rational Pricing of Internet Companies.. Financial Analysts Journal May/June 2000, p. 62-74
