The Excel Investment and Business Valuation Templateprovides an easy and accurate solution for calculating the valuation of proposed business investments and entire companies. Valuation assumptions are logically set out to provide flexibility for business dynamics and facilitate input flow. New investment proposals can be valued for purposes of obtaining venture capital financing and proposed changes to existing business structures can be evaluated in comparative analysis. Accurate financial calculations for analytical components of the business valuation are separated with the ability to drill down for detailed interogation. The detailed valuation components include capital and asset management, depreciation schedules, tax calculations, cash flow and economic value added.
Key features of the Excel Investment and Business Valuation template include:
Economic Value Added (EVA) calculation with the flexibility to identify economic costs of investment nature and specify amortization periods representing expected payback periods. Economic value added is fundamental for quantifying value attributable to equity holders and important for acquiring equity financing.
Financial accounting analysis provides Profit and Loss Statement, Balance Sheet and Cash Flow Statement constructed automatically from input data and assumptions and includes breakdown and impact analysis.
Formulas accurately calculate financials for existing and new asset purchases, disposals and depreciation with financing assumptions and gearing impacts.
Flexibility to value a new business investments, changes to existing business structures or comparison between two investment proposals (such as lease versus purchase analysis).
Expandable input for a five year explicit valuation period is provided with configurable terminal value calculation.
An option is provided to employ an alternative 'finite' terminal value calculation to mimic investment or product life cycles. This is useful in competitive new economy markets, whereby future growth peaks after a certain time period and subsequently diminishes.
The components of a Comparative Investment Score can be defined in order to evaluate and prioritize different investments or business case proposals depending on the prevailing business environment.
The analysis includes net present value (NPV), modified internal rate of return (MIRR), return on investment (ROI) and economic value added (EVA) calculations with detailed breakdown of components and chart visualization.
The workflow is designed for simplicity and flexibility of input assumptions, with embedded help icons to clearly describe input parameters and result calculations.
The key input assumptions for the business valuation analysis provide the basis for which calculations are performed for the overall valuation. The name of the business or investment, initial calendar year and input denomination flow through the model for presentation purposes. Tax and amortization assumptions drive tax commitments and cash flows as well as accounting impacts. Capital assumptions are accounted for in capital expenditure requirements, discounted cash flow and capital charge calculations under the economic valued added framework. The terminal value after the 5 year explicit forecast period can be based on the traditional perpetuity method or instead given a maturity period under a finite method to more realistically reflect a reasonable competitive advantage period. Weights can be applied to the components of the comparable investment score which serves to establish a summary benchmark value for comparing investment opportunities under specific economic environments.
Financial Data Input
The financial data for the 5 year forecast period is required to be entered into the blue cells provided in the Before and After sheets for existing business investments or just the After sheet for new business valuations. Revenue and expenditure lines items can be added and removed with the plus and minus icons provided. Detailed help for each input parameter can be accessed with the help icons next to each of the titles. Investment expenses input applies to costs that are treated as expenditure under accounting regulations but are investments in future business growth under the economic value added method of valuation. Both existing assets and capital investment in new assets are accounted here to calculate capital employed and depreciation data under financial and tax accounting regimes.
Pro Forma Financial Accounting Statements
The Excel investment and business valuation template creates pro forma financial statements for accounting, debt funding and tax purposes. The summary pro forma statements include the profit and loss statement, balance sheet and cash flow statement. For analysis of changes to existing businesses or comparison of two investment proposals, the accounting statements show the incremental effect between the before and after scenarios. New investment and business valuations produce pro forma financial statements for the stand alone business. The financial statements are presented in summarized line items and detailed analysis of the breakdown can be accessed via the expandable drill down areas in the lower section of the Before and After sheets.
Business Valuation Results
The overall valuation results of the business or investment are calculated under both the traditional discounted cash flow (DCF) method and the economic value added (EVA) method of valuation. The difference between the DCF and EVA methods is the timing of cash flows due to the capitalization of investment expenditure under the EVA framework. Economic value added is particularly useful for communicating value to potential equity investors as it focusses on the value attributable to equity stakeholders by accounting for investment for future revenue growth. Conversely, these investments are expensed when incurred under traditional accounting to analyze liquidity risk geared more to debt holder interests. The DCF and EVA valuations equate with the terminal value as the cash flow timing difference cancels out over time. To evaluate whether a company's share price is under or overvalued, the valuation result can be divided by the number of shares outstanding to calculate the fair value per share.
Financial Ratios and KPIs
The Excel investment and business valuation template summarizes results with financial ratios and key performance indicators to facilitate evaluation and enable timely management decision making. Key performance indicators form components of the comparable investment score including the return on invested capital (ROI), net present value of cash flows (NPV), cost to benefit ratio, payback period and free cash flow after 2 years. Implicit annual growth rates are presented for key financial results to gauge the relative trend for the drivers to the valuation. Debt to equity gearing analysis and modified internal rate of return serve to assist capital financing arrangements. Time series charts display the annual cumulative cash flow and economic value added isolated over the 5 year forecast period as well as with the terminal value trend.
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