Introduction
Valuing a private company requires a meticulous approach to ensure accuracy and consistency. This checklist serves as a guideline for analysts to verify key valuation components before finalising their analysis.
Valuation Checklist
With our comprehensive checklist, you'll have a clear, step-by-step guide to ensure all the necessary elements are in place for an accurate and thorough assessment within the platform.
Data Integrity and Link Validation
Verify that all Excel links from exports to original data sources are correct and functioning properly.
Financial Projections and Assumptions
Sales Growth: Ensure that projected sales growth aligns with historical trends or at least with the peer group.
Margins: Check if the margins are in line with historical performance or comparable peer companies.
Working Capital (WC): Confirm that working capital grows roughly in line with sales to avoid inconsistencies.
Depreciation & Amortization (D&A): Validate that the D&A assumption as a percentage of assets (not just sales) follows a reasonable linear depreciation schedule.
Capital Expenditures (Capex): Ensure that Capex is set to:
Capex = D&A * (1 + sales growth rate)
If there are deviations, confirm that they are justified (e.g., specific Capex projects).
Unusual Developments: Identify any outliers or unusual trends (e.g., hockey-stick growth patterns) and confirm that they are supported by reasonable explanations.
Peer Group Analysis and Adjustments
Outlier Review: Ensure that any significant outliers in beta, multiples, or other metrics have been removed or justified.
Comparability Check: Validate that the peer group is not only descriptively relevant but also aligns in terms of margin and growth profile with the valuation subject.
Beta Factor: Confirm that the selected beta reflects the cyclicality of the industry. If discrepancies exist, review and adjust the peer group accordingly.
Terminal Year Considerations
Sales Growth: Set terminal year sales growth at 2% to align with long-term economic assumptions.
Capex Consistency: Verify that Capex aligns with the previously stated formula and does not deviate without justification.
Valuation Range Review
Compare DCF, trading, and transaction multiples to ensure they produce similar valuation ranges.
If discrepancies exist, revisit:
DCF assumptions, including cash flow projections.
Peer selection and multiple adjustments.
Selected precedent transactions for reasonableness.
Conclusion
By systematically following this checklist, analysts can enhance the reliability and consistency of private company valuations. Careful attention to financial assumptions, peer selection, and terminal year adjustments ensures a well-founded valuation outcome.