Comp Analysis - Questions ?

3. For earnings estimates it's pretty standard to use the I/B/E/S consensus estimate on the bloomberg EEO screen. I've never seen it done otherwise.
4. Depends on what industry you're working with. There are many specialized ratios like EV/reserves or EV/mboed for oil and gas producers, or TAC/users (traffic acquisition cost) for internet portals.

I don't get your strategic v. financial EBITDA Q. \Instead of starting with NI and adding back ITDA, use operating income (and make sure they don't have D&A above that line) which ignores earnings from JV's and the like.

1:
From what I've seen from interning (boutique), the answer is to get the number right. Hence, I usually go the route of direct financial statements, particularly because CapIQ is wrong so frequently (especially with smaller companies).
2:
You have to do more than just figure out the LTM of data, you also have to properly calenderize it. Comparable companies can have different fiscal years, throwing off your future estimates from analysts who state estimates in the respective company's FY.
6: See #1. You have to get the #s right. What I do is pull the data from a source, then compare it with press releases obtained from company websites. If there is a discrepancy, I stick with the website #s. This way I am double checking my work against itself and against multiple sources.

1) Always from 10Q/K, unless specifically told otherwise (quick and dirty calc)
2) Need to really only adjust for historical comps. Adjust for non-recurring, etc.
3) I/B/E/S consensus mostly, sometimes from ER reports
4) The multiples you use depends on your industry (telecom uses ARPU, etc), but the ones you mentioned are most common
5) There is usually a comp set, but its a different story whether its kept updated or not. Comp time depends on how many companies, etc. Historical comps can take a long time with all the adjustments.
6) Precedents are a bitch- get info from anywhere you can- Factset, PR, website, etc.

Thanks for all the information. Any thoughts on the below questions :

Q1. How do stock options & preferred stocks get factored into a comp - analysis ?

Q2. For historical comps...I know that one time expenses (from restructuring) are added back while one off / non recurring gains are subtracted. Hence changing the EBITDA & EBIT numbers.
The Net Income is also adjusted taking marginal tax into account. Hence i am assuming the EPS number changes as well...making these adjustments ?

Q3. While creating a comp...the ratios for how many historical & future years are needed ? For example for a comps being created in 2007....I would assume the historical years would be 2004 - 2006 and the future ratios would be for 2007 - 2009 ?

Thanks in advance.

Correct answers to your questions would depend on the purpose of your analysis.

1. Value and deduct the stock options from equity value for regular stock analysis. Also take into account that not all options would be exercised, so it's important that you have a historical ratio of exercised options. If this is for a live deal all outstanding options would be immediately exercised due to change of control provisions that call for immediate vesting of all options and restricted stock.... so the buyer would foot the bill.

2.Don't understand your question, but I'd simplify things and only look at operating income, excluding all one time gains and charges.

3. P/E multiple is based on stock price and ttm EPS unless otherwise stated. The trailing twelve month earnings is all you need for "history".

If you are valuing a cyclical firm, normalize earnings and other inputs over the last cycle. That way you don't under or over value your target in a good or bad year.

Following from the above comments..I have a quick question :

If P&L statement has the following line items:

Sales
-Cost of Goods
Gross Profit
-Operating Expenses
EBIT
+D&A
EBITDA
+ Total Non-operating Income
- Total Non-operating Expenses
Pretax Income
- Income Tax
Net Income
- Dividends
Retained Earnings

To calculate EPS...I am assuming the Non-operating Income needs to be subtracted from the Net Income and the Non-operating expense needs to be added to the Net Income. Then the Net Income is divided by the total number of shares to get the corrected EPS.

Is the above correct ?

Unless otherwise stated, reported EPS does not care about the source of income, so whether it's from direct operations, or dividends from a subsidiary is really irrelevant. If you look at a 10-Q carefully, you'll see only one line for Net Income Applicable To Common Shares which is after all sources of income and their expenses (cash & non-cash).

During a restructuring the firm can also report "EPS excluding restructuring charges", so investors see the net effect of restructurings on EPS.

So....in that case the only time you need to make changes to the Net Income is when the income is a one-off (non-recurring)..and the nature of the income(core / non-core) would result in no changes to the Net Income and hence EPS.

Is that correct ?