I need to create a bridge/waterfall between two valuations (old estimates vs. new estimate) to explain what changed in the new forecast. In other words, I have valuated a company using one forecast that resulted in, lets say, 1bn and a second valuation of the same company but with an updated forecast that resulted in, lets say, 1.5bn. How would I do this, what categories should I look at? I am think to show the change in revenue, working capital ,capex, opex etc in absolute terms or should I try to look and see what the impact of changes in gross margin and/or EBITDA margin etc?
Any suggestion, or even examples, would be much appreciated.
Depends on why things have changed... And also how granular you want to show. I'm assuming valuation metrics stayed the same but financials have improved? Why don't you isolate items based on materiality and show the valuation impact from those items that swung widely...and lump various small changes in Other? Most likely would show Revenue swing impact, Exp swing impact, any other capex/cash outlay swing and then the rest. Or you could just show a swing in EBITDA but then people may ultimately want to dig further into that anyway.
Thanks for your reply. I agree that I should focus on the material swings like revenue and some of the expense line items.
But the new forecast also shows improvement in the gross margin, how can I show that? Should I take the change in gp margin times the change in revenue or what's the best way to do it? I mean, if I just show an increase in revenue and an increase in COGS then the reader can't see if that's good (increased margin) or bad (decrease in margin) change and showing the absolute $ change doesn't mean as much as the change in the margin%.
One more question, how do I calculate the impact on valuation from a change in the timing of the cash flows?
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