Merging macro views and industry/competitive analysis into valuation/accounting assumptions

kent02's picture
Rank: Senior Monkey | banana points 67

brief introduction: I have become more and more accustomed to translate observations about the competitive strategy as well as the general demand/supply/new trends of the underlying industry into both accounting assumptions (revenue/COGS/D&A/Capex/etc) and valuation matters (risk/multiple analysis/reasonable LT growth rate/etc) but I am still failing to put the macroeconomic input in the midst.

example: I am trying to put into perspective the taxi market (Uber environment) and trying to gauge market share as well as the kind of contracts Uber can negotiate relative to the frequency users switch from normal taxis. good. i can read reports and market studies for this but they are inherently using some macroeconomic assumptions (GDP per capita/employment/trade balances/inflation/etc) that directly affect the number of total passengers (more unemployed means less business people getting into taxis).

what way (preferably rigorous & testable) would you devise to plug into the model such macro assumptions that do change the industry landscape? (=report says 30 mil passengers in US with CAGR 5% but I think workforce will shrink so how i do translate such estimate into changing those sensitive numbers)

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Comments (2)

May 13, 2015

You need to build the model with changeable assumptions that the user can toggle. So if you are assuming 30 million growing at 5% a year, have a base value (30 Million) and make your growth rate changeable so you can can test it at 4% a year or even negative growth per year.

Is that what you are trying to get at? I mean it comes down to identifying the macro factors that you think will impact the company, and then create a 'waterfall' scenario for them. So if for example you believe that a company can capture 1% of any growth in the marketplace, you build that into your assumptions. So you have 30 million which grow at 5% (so, next year you have 31.5 million of which you captured one percent of the growth so the company picked up 15,000 new customers) and tie them together so that you can change the growth rate, acquisition rate, etc. Then tie that 15,000 number into whatever financials you have and flow it through them.

Again, i'm not quite sure if that is what you mean. At the end of the day, you need to make some assumptions you are comfortable with and then tie them into your model so that you can change those assumptions.

May 14, 2015