Question about building a model for interview
I've been asked to build a model for an interview in M&A. There are a couple questions I have. I'm supposed to project out the financial statements for 5 years, and they've provided the WACC, capex and NWC as a % of sales. Then I'm supposed to give 2 valuation methodologies.
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I've been given an income statement, where the business pays interest expense, but no debt balance has been provided- how do I model interest expense going forwards? I can't do an FCFF valuation if I can't project out the interest expense.
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Bad debts, bank charges and leases- to me these should all fall under operating expenses under IFRS, but it'd be helpful for someone to clarify
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Other than a cash flow valuation, what else can I do? Asset based is impossible without a balance sheet, the company doesn't pay dividends so no DDM, no comparables have been produced either. So I'm kinda stuck on this one.
Thanks
We're not here to do your modelling test for you.
1.They've given you the WACC so they want you to do a firm valuation, no cost of equity? I presume they want you to value the equity, which would be easy enough if they gave you a debt balance since you'd subtract it off the firm valuation to get the equity. Not sure how to get equity value without debt, if the company is paying debt. I'd be interested in the answer to this too
Bank charges would just be fees I presume so that's opex. Leases depending on whether they're capital or operating, but I'd classify them as opex. You can reclassify the interest and operating expenses if they've given you a breakdown of the leases. Bad debts, I guess would be opex but I'm not sure on this one.
I barely think you have enough detail to do an equity valuation let alone a second valuation. At a minimum without the debt balance you'll need to the cost of equity.
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