When you guys create any sort of valuation model (for a stock pitch), how many years' worth of historical financials is recommended? Also, do you use the standardized accounts or the accounts as reported on the filings?
Along those same lines, for a stock pitch, for how many years' worth of financials do you make adjustments? I just finished adjusting the latest 10-k for a company, and doing that (adjusting, revising, researching) took over 3 weeks (after work and on weekends). Are firms expecting interviewees to have fully adjusted 5+ years' worth of filings? Is it even necessary to adjust any of other prior filings, after you adjust the latest?
Any thoughts or suggestions would be greatly appreciated!
Obviously it depends on the investor/who the pitch book is for, but generally 5 or 10 years is a good place to start
Thanks for your reply! How about adjustments? Will I need to make adjustments to all 5 or 10 years' filings?
It really depends!
Historical information is used as a rough guide to identify trends in the current business model.
Using historical information, we can see trends in revenues and more importantly, earnings. From these starting figures we can introduce growth models and other important factors related to economics.
To answer your question, we should be asking: "How many years of historical information is most RELEVANT"
Apple 15 years ago is not the Apple it is today. So using historical figures from 15 years ago are pointless!
Usually 5 years is nice. However, you can always pose a suitable argument to why you gathered more or less.
In regards to financial adjustments due to accounting conventions, you'll probably need to adjust for every historical year. It depends how you're willing to use these figures. If you require an average to forecast future adjustments, then yes.
Hope this helps
Regards,
Gus Montano
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