What kind of firms are the easiest to value?

CanadianUser's picture
Rank: Chimp | 7

Is there a publicly listed firm out there that's possible to value by beginner like myself (I've done some DCF modeling)?

I'm guessing firms with a lot of accurate information out in the public are the easiest but what would they be? IBM? Coca Cola?

Easy Firm Valuation


Source: A Tangled Web of Values

The simplest firms to value for states would probably be industrial companies or consumer companies. Less complex companies will be the easiest to examine. Here's a quick list of qualifiers for a "simpler" company

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Comments (6)

Jan 4, 2012

Sorry, replied in the wrong thread.

Proceed please.

Jan 4, 2012

A well established consumer company or industrial company with stable (positive) cash flows and minimal, consistent capital expenditures would likely be the best place to start. You would ideally, also want to target a company with a simple capital structure (i.e. not many tranches of debt and basic equity). For your purposes you would probably want to shy away from companies that own many subsidiaries and have to consolidate revenues from them.

If you are trying to learn I would recommend looking at some self-study modeling programs.

Jan 4, 2012

In my opinion I found the natural resource companies quite simple to value as their revenue structures are quite simple.

However the way I would go about it, and how I found it useful, regardless of the company you want to value is to start off with a relatively uncomplicated model, not going into too much detail with regards to different line items. And once you are comfortable just building more layers into it and making it more complex, good step by step way of starting.

But yea as rufiolove suggested consumer/industrial is good too.

Jan 4, 2012
eula:

In my opinion I found the natural resource companies quite simple to value as their revenue structures are quite simple.

However the way I would go about it, and how I found it useful, regardless of the company you want to value is to start off with a relatively uncomplicated model, not going into too much detail with regards to different line items. And once you are comfortable just building more layers into it and making it more complex, good step by step way of starting.

But yea as rufiolove suggested consumer/industrial is good too.

I don't think natural resources companies would be a good place to start, because they're unique in that their value depends on their reserves and other contingent factors like the projected prices of their commodity. This method is more of a special case, and you probably won't get questions about this unless you interview specifically for these kinds of groups.

You could do a DCF to practice doing a DCF, but generally it wouldn't be a preferred way to value a resources company.

In general, stick with plain 'vanilla'-type companies that don't have complicated organization structure.

Jan 5, 2012

Natural Resources are tough. For oil you get into proved/probable/possible resources, uncertainty about future land acquisitions, highly volatile commodity prices, etc.

Insurance companies are pretty easy in that they all trade in some relation to book value based on the type of insurance they are underwriting, quality of investment holdings, etc

Asset management companies may be the absolute easiest though. Most publish a weighted average fee rate every quarter and AUM monthly. Their only real expense is compensation and that doesn't change too much month to month. Rent, third party administrative expenses, marketing, etc are all pretty stable costs as well.

Jan 5, 2012
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