Question About Range on Sensitivity Tables
I have a sensitivity table that is showing a very wide range of outputs/implied share prices based on the perpetuity growth rate and WACC. If this happens and the range of outputs is too wide, is it better practice to only include 3 columns of PPG or would it be better practice to decline the change in PPG for each column. For example, say I have a sensitivity table that has PPG starting from 2.5% declining .5% from both sides creating a range of 1.5% to 3.5%. Would it be better to only provide the range of PPG from 1% to 3% Or should I decrease the incremental change from .25% to make the range go from 2.25% to 2.75%. I’ve only seen sensitivity tables that have PPG change by .5% which is why Imn not sure if the latter is best practice/is too little of change. Also, I have another sensitivity table for the EBITDA exit multiple & WACC which has 5 columns for the exit multiple which is why I’m not sure if I can only provide 3 columns for the PPG sensitivity table
Bump
Only 1 rule: the range must be sensible. PPG 1.5%-2.5%. EBITDA multilpe: use min max of peers or min/max of historical average of peers. etc
So I can show a sentivity table for PPG with only 3 columns (starting @ 2% and +/- .5%) and also show an EBITDA exit multiple sensitivity table with 5 columns (starting at 20x and +/-1x)? Or would it be better to show PPG also with 5 columns with a .25% step instead of .5%?
I would always keep number of columns equal, as it looks much better on slide :) Just make sure the range is sensible and than divide in 4 steps (=5 columns)
ps. exit multiple of 20x!? Is this an infrastructure deal or what?
This is just for practice. How should you come to an appropriate ebitda exit multiple? Wouldn't you find comps for the ev/ebitda multiple? Which year's ebitda multiple should you use as your exit multiple if you are doing a 5 yr dcf?
Is this for a LBO? In that case you normally take entry multilpe = exit multilpe. You could work with +/- 1.0x in total. You could also work with low/high multiple of peers. You use the multilpe that fits the EBITDA you use (so a LTM or a NTM multiple depending if you make a 5 of 6y forecast in this case).
If for DCF, exit multiple is not very common. Often you just calculate a terminal value based on last years FCF. Personally I prefer value driver method over grodon growth as the latter completely overstates value in most cases. If you choose to use an exit multiple, same story as with the LBO multiple (LTM vs NTM).
This is for a dcf. I am calculating terminal values based on 1) perpetuity growth rate and 2) ebitda exit multiple. I'm surprised to hear that ebitda exit multiple isn't common because I'm basing my dcf off of the rosenbaum & pearl model (which takes the last years projected ebitda i.e. 2025 ebitda) and this method has also been used in the modeling courses I've taken. Would you be able to explain what the value driver method is? I havent heard of that before
What's PPG?
Perpetual growth rate (commonly abbreviated to PGR instead of PPG)
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