Help Valuing A Very Negative Company

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Rank: Senior Neanderthal | 4,264

Currently working on valuing a very indebted retail company for potential takeover and having serious troubles. Operating Income is negative, EPS is negative, Net Income is negative, EBITDA is negative and jumping all over the place, Retained Earnings is negative (and growing), Cash & CE is negative, Revenue is shrinking.

Done some public comps so far (this has gone reasonably well, quite a few similar companies), tried to put together a DCF but it just throws back implied share prices of 0 for every sensitivity value.

So yea, how do you value a company where almost everything is negative other than just public comps or saying "its worthless". Any help would be GREATLY appreciated!


Comments (15)

Dec 15, 2011

Precedent transactions? Assets times comps?

Dec 15, 2011


"Millionaires don't use astrology, billionaires do"

Dec 15, 2011

Alternatively admit it's a piece of shit worth zero or use metrics from the '90s tech bubble.

Dec 15, 2011

You have to extend the time period of your DCF so that you capture whatever turnaround you are expecting. I know that tech companies with negative earnings can be valued using 15-20 year DCFs.

Dec 15, 2011

you will have to take it at the net tangible asset value. the key will be to recognize how much the inventory is actually worth based on style, etc being potentially obsolete. it may not even be viable to sell it as shares, may just be an asset purchase to realize anything.

Dec 15, 2011

In addition to the assets, is the name worth anything i.e. good recognition, well known?

Dec 15, 2011


Look for other non-operating items

Dec 15, 2011

As a takeover target, this company isn't worth much unless there is a plan in place to improve operations. Extend your DCF until you capture that plan: improving margins, cuttting capex, etc and eventually getting to positive CF. You can use industry comps to get an idea of what is reasonable for the industry. If someone is trying to pitch you 30% FCF on retail, you can know what that is related to other companies in that space.

Does the plan contemplate cramming down on existing creditors? Be sure to model that in if so.

Don't go terminal on your DCF until you have achieved some sort of steady state contemplated by the turnaround. If the value is still 0 or negative, you should seriously revisit this as an investment opportunity.

NOLs can get tricky, but you may need to model tax savings from NOL carryforwards.

Dec 16, 2011

Thanks very much everyone!

Dec 16, 2011

try using the bottom-quartile revenue multiple from public comps (espc if those comps are also not profitable)

Dec 16, 2011

NOL options

1) You can model it by offsetting "future" profit


2) PV of the tax shield

Dec 16, 2011

[email protected] hlhz case study about 75% of the way through and youll have a good example of what it means to value the company after the turnaround

Dec 16, 2011

You don't value it because it is worth less then a nickle in my pocket.

But in reality what Darkpool said are several ways to do it.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Jan 6, 2012

Pretty certain this has been discussed before, so I'd recommend using the search function.

Nonetheless, Houlihan issued a really good case study a while back that provides a great beginner's introduction to financial restructuring. Check it out:

Jan 6, 2012