comps adjustments
Those of you already in the industry very often mention numerous adjustments made by hand in the process of comparables' analysis. Could you please elaborate a little bit: what are these adjustments (at least, the key ones) and why one has to make them. Thanks!
1: Did the company acquire or sell anything recently? Is it large enough to be material? Pro forma for acquisition or divestiture.
2: Did the company have any one-time weird stuff (restructuring, restatements, writeoffs, etc.)? Back it out.
3: Did the company pay a special dividend last quarter? Be sure to use a normalized dividend payout ratio.
4: Was EPS affected by anything strange? Get rid of it.
Thank you for the reply, Mis Ind! (1), (2) and (4) are pretty clear, but which multiples are affected by (3)? The only thing I can think of is impact on cash --> EV - are you adjusting for this?
I've had to mess with special dividends before when I was working for someone who wanted to back the dividend payout ratio out of forward consensus FCF (which I suppose is valid in sectors that tend to pay large and regular dividends). This guy liked to use FCF multiples to value his companies.
The particular segment the guy was valuing didn't seem like it should be valued off FCF. Then again, my role is not to question but to obey.
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