How do I apply P/E ratio in this scenario?
Hear me out first.
I’m doing an valuation/LBO case study (at uni). Basically the task is, I have a company, that I need to value, build EV-Equity Bridge, come up with financing, and calculate returns for private equity purchasing it.
So, I have all the financials for the company. I have projected sales, cash flows, and balance sheet.
In calculating the equity value, I have applied the P/E multiple obtained from comparables on the last reported net income, and further added net financial debt of the same year with adjustments to other items. Basically, the question is in the years I have used. So now, professor is giving more information on the changes of company’s growth and is asking to update the EQV-EV bridge. But all these changes are occurring in the future/in the forecasting period and since I have built my bridge on the basis of last reported financials, nothing technically changes in my bridge, that is EqV and Ev stay the same as I have derived P/E from comparable companies and applied them onto existing net income… I feel like I’m doing something wrong in understanding here, but how does the changes in projected company’s growth/information on new projects/etc. changes the EqV and EV value? Should I apply P/E to forecasted net income maybe…? I’d appreciate if you would help me out :)
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