Valuation question - capitalizing r&d
O
(Monkey, 53
Points)
on 3/8/12 at 12:58pm
Question for the valuation junkies out there:
I'm valuing a biotech firm and would like to capitalize r&d expenses.
How should this affect the DCF valuation?
I'm assuming that, in any given year (in the forecast period), I should:
-Add back R&D expense to EBIT
-Subtract R&D amortization from EBIT
-Assume taxes aren't affected
-R&D expense at t0 is subtracted from free cash flows (same treatment as CAPEX)
Am I forgetting anything?





if you are running everything
if you are running everything on a cash basis, why would you double count the R&D Amort and the capex?
come on now...
well atleast add back the
well atleast add back the amort when you calculate FCF, I assumed you were just subtracting it.
accounting wise i am not sure
accounting wise i am not sure you can capitalize these cost, unless this is purely R&D shop, that plans to sell this product once its completed,
GAAP - can't capitalise R&D
GAAP - can't capitalise R&D unless software, biotech etc..
IFRS - can't capitalise R but can D
PA, sorry forgot to mention
PA, sorry forgot to mention that I am in fact adding back the amortization when calculating the FCFF.
Please correct me if I am wrong, but from a theoretical standpoint, shouldn't EVA and DCF produce the same valuation (if same assumptions are inputted in each model)? And if so, capitalizing an expense surely should affect each model in the same way, right?
Appreciate the input guys.