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Investment and Business Valuation Help Topics: Setting the Assumptions Financial Data Input Analyzing and Utilizing the Results
The 'Results' sheet outputs the valuation parameters of the analysis into several categories. The complete Results sheet can be export to a new book using the button provided so that sections can be copied and embedded into other media such as business case proposals.
The Accounting Impact displays the main components and calculation of Net Profit. This information is the least accurate in terms of economic reality, but is useful to determine the impact of the investment on accounting results. Such analysis is useful evaluating possible credit rating and/or shareholder reporting and disclosure implications.
The Cash Flow Analysis displays the main components of cash flow and calculates the Net Present Value (NPV) of cash flows at the discount rate. The 5-yr NPV of Cash Flow includes the PV of remaining capital commitments after year 5, as displayed to the right. The terminal value is also calculated here (if applicable) to calculate the total NPV of cash flows and therefore the overall Valuation of the investment represented by the expected future cash flows. The cash flow analysis is also useful for evaluating the timing impact of cash received and required by the business, and its corresponding impact on the cash flow statement.
The Economic Value Added shows main components of the EVA calculation and the NPV of EVA at the discount rate. Like the cash flow analysis, the 5-yr present value (PV) of EVA for the 5 years includes the remaining capital commitments after year 5, as displayed to the right. The EVA terminal value is also calculated here (if applicable) to calculate the Total PV of EVA. If an Infinite terminal value is employed, the Total PV of EVA will be equal to the total PV of cash flows. This is because EVA and Cash Flow are equal to infinity, with the only difference being the timing as capitalized items is spread out over future years under EVA. The Economic Value Added analysis is the most accurate in terms of economic reality and is useful for measuring shareholder value creation and linking management incentives to shareholder interests.
The Comparable Investment Score section utilizes the parameters in the 'Assumptions' sheet to apply a weighted average score to the investment. Each component of the score is displayed here to sum to the total Comparable Investment Score. This can be used to benchmark the overall investments attributes against competing, alternative or future proposals. While the overall score provides a quick solution to determine the viability of the proposal, the components of the score should also be analyzed to understand its strengths and weaknesses.
The Additional Analysis section provides some further useful analytics for the investment. Implicit annual growth rates are calculated using the 5 year input data for total revenues, total expenses, operating cash flow, net cash flow, economic profit, and EVA. The change in the business's gearing ratio (total debt to total capital), from year 0 to year 5 is also calculated and displayed here. Finally, The Modified Internal Rate of Return (MIRR) is displayed. The MIRR represents the hypothetical investment return if the NPV of cash flow is zero, taking into account both the cost of the investment and the interest received on reinvestment of cash.
The Charts section displays graphical representations of both Net Cash Flow and EVA. Charts provided for each include annual and cumulative for the 5-year forecast, and annual with the terminal value displayed until year 100.