Hadaly’s Approach to Company Valuation

Hadaly’s valuation methodology is based on a structured approach designed to provide reliable estimates of a company’s value. Our framework combines advanced analytical techniques with powerful digital tools, enabling the production of precise and context-specific analyses.

Methodologies

The evaluation is conducted using three primary methodologies, each offering a unique perspective on the company’s valuation:

1. Multiples Method

This approach involves comparing the company to others within the same industry using specific financial ratios known as multiples. These multiples are calculated by relating particular financial metrics, such as Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) or revenue, to enterprise value. By comparing these ratios to those of similar companies, it is possible to estimate the value of the assessed company.

N.B. In all applicable valuation methods, a normalized EBITDA is used by subtracting all exceptional or discretionary expenses in order to better reflect the company’s recurring operational performance.

1.1. Revenue Multiple Method

The Revenue Multiples Method estimates a company’s value by multiplying its annual revenue by an appropriate multiple. This method is particularly useful for companies in their growth phase or those that are not yet profitable.

1.2. EBITDA Multiple Method

The EBITDA Multiple Method estimates a company’s value by multiplying its annual EBITDA by an appropriate multiple. This method is widely used because it allows for meaningful comparisons between companies with different capital structures and tax policies.

2. Discounted Cash Flow (DCF) Method

The DCF method estimates the current value of a company by discounting its projected future cash flows using an appropriate discount rate, typically calculated through the Weighted Average Cost of Capital (WACC). This method assumes that a company’s value is the sum of its future cash flows adjusted to reflect the time value of money.

Key steps include:

• Projecting Free Cash Flows: Forecasting free cash flows, which represent the cash available to investors after operating expenses, capital expenditures, and taxes. Typically, projections cover 5 to 10 years.
• Discounting the Cash Flows: Applying the WACC to bring future cash flows to their present value. A lower WACC indicates lower financing costs, while a higher WACC reflects higher expected returns from investors.
• Calculating the Terminal Value: Estimating the company’s value beyond the forecast period to account for ongoing operations.
• Summing the Discounted Values: Combining the present value of projected free cash flows and terminal value to determine the total enterprise value.

3. Equity Method

The equity method evaluates the company’s value by adjusting the market value of its assets and liabilities to their fair market value. By subtracting total liabilities from the revalued total assets, the company’s equity value is determined. This method is particularly useful for businesses with significant tangible assets whose values may have changed over time.

Terms

COGS
Direct costs associated with producing goods or services, such as raw materials and direct labor.

SG&A
General operational expenses such as marketing, management, and office costs, excluding direct production costs.

Depreciation and Amortization
The accounting reduction of the value of long-term assets over their expected useful life, reflecting usage, wear, or obsolescence.

Asset
Everything a company owns that has value, such as cash, equipment, inventory, or property.

• Current Asset: Assets expected to be converted into cash or used within one year.
• Long-Term Asset: Resources used over several years, like buildings, land, or patents.

Liability
What a company owes to others, including debts and obligations.

• Current Liability: Obligations due within one year.
• Long-Term Liability: Obligations due beyond one year, such as loans or bonds.

EBITDA
Earnings before interest, taxes, depreciation, and amortization — commonly used to assess operational profitability.

EBIT
Profit generated from core operations, before deducting interest and taxes.

Net Income
The final amount earned after subtracting all expenses, including interest and taxes.

Abbreviations