L.E.K.

Valuation Toolkit
Version: May 7, 2001
Welcome to the L.E.K. Valuation Toolkit. This model is designed to help you quickly perform a
business valuation, identify its primary value drivers, and assess an appropriate capital
structure. It contains several worksheets:
Sheet

Description

It also employs the following conventions:

Conventions:

Value Drivers

Calculates value drivers from historical and forecast financial information

Blue Text

These cells are inputs. You may enter values.

ValueLine

Calculates value drivers from information on a ValueLine Report

Black Text

These cells are formulas. They are protected and

cannot be modified.

Peer Group
Beta
Shareholder
Value
Sensitivities
Analysis
Current
Multiples
Transaction
Multiples
Capital
Structure
Peer Group
Cap. Struct.

Relevers Betas for use in peer group cost of equity analysis

Disclaimer:

This toolkit is intended for pedagogic purposes only. L.E.K. Consulting LLC assumes no responsibility for analyses conducted with this toolkit and
assumes no liability for any decisions made on the basis of such analysis. All rights reserved.

2/26/2014, 8:23 PM

Calculates shareholder value based on value drivers input from either of the
prior two worksheets or ones that are entered directly
Produces "Tornado" charts based on the value drivers used on the
"Shareholder Value" worksheet
Calculates current prices based on multiples

Buttons with
These must be pressed to calculate an answer
Blue Text

Buttons with
These either select inputs or reset inputs
Black Text

Calculates acquisition prices based on past transactions

Assesses an appropriate capital structure based on "downside" cash flows
Calculates debt to total capital ratios for peers using book and market numbers

1 of 10

213802645.xls.ms_office, Instructions

Value Driver Calculations

Company Name:
Scenario:
Units:
First Historical Year
Last Historical Year
Year

Acme Corporation
Base Case
$ millions
1998
2000
1998

1999

2000

2001

2002

2003

2004

2005

Sales

757.86

870.55

1,000.00

1,148.70

1,319.51

1,515.72

1,741.11

2,000.01

Operating Profit
Cost of Goods Sold (COGS)
+ SG&A
+ Other Operating Expenses
= Total Costs

582.71
50.52
64.00
697.23

669.36
58.04
73.51
800.91

768.89
66.67
84.44
920.00

883.22
76.58
97.00
1,056.80

1,014.56
87.97
111.43
1,213.95

1,165.42
101.05
127.99
1,394.47

1,338.72
116.07
147.03
1,601.82

1,537.79
133.33
168.89
1,840.01

60.63

69.64

80.00

91.90

105.56

121.26

139.29

160.00

18.95
7.38
2.05
2.46
21.83

21.77
8.47
2.35
2.82
25.07

25.00
9.73
2.70
3.24
28.80

28.72
11.18
3.10
3.72
33.08

32.99
12.85
3.56
4.27
38.00

37.90
14.76
4.09
4.91
43.65

43.54
16.95
4.70
5.64
50.14

50.01
19.47
5.40
6.48
57.60

42.20
19.66
22.54

48.48
22.59
25.89

55.68
25.94
29.74

63.96
29.80
34.16

73.47
34.23
39.24

84.40
39.32
45.08

96.95
45.17
51.78

4.48
33.50
47.10
15.30
100.38

5.11
38.48
53.54
17.46
114.60

5.84
44.21
60.94
19.95
130.94

6.68
50.78
69.44
22.82
149.72

7.64
58.33
79.20
26.10
171.28

8.75
67.01
90.42
29.88
196.05

10.02
76.97
103.30
34.21
224.50

11.47
88.41
118.10
39.19
257.18

15.40
1.15
3.33
19.88

17.69
1.32
3.83
22.84

20.33
1.51
4.40
26.23

23.35
1.74
5.05
30.14

26.82
2.00
5.80
34.62

30.81
2.29
6.66
39.76

35.39
2.63
7.65
45.68

40.65
3.03
8.79
52.47

11.27

12.95

14.87

17.08

19.62

22.54

25.89

Operating Profit
Operating Cash Taxes
Income Tax Provision
+ Interest Tax Shield
- Tax on Non-Operating Income
- Incr. in Deferred Tax Liability
= Operating Cash Taxes
Incremental Fixed Capital
Total Fixed Capital Investment
- Depreciation
= Incremental Fixed Capital
Incremental Working Capital
Cash
+ Accounts Receivable
+ Inventories
+ Other Operating Current Assets
= Total Operating Current Assets
+
+
+
=

Accounts Payable
Income Taxes Payable
Other Operating Current Liabilities
Total Operating Current Liabilities
Incremental Working Capital

Value Drivers
Sales Growth (G)
Operating Profit Margin (P)
Operating Cash Tax Rate (T)
Incr. Fixed Capital Investment (F)
Incr. Working Capital Investment (W)
Cost of Capital (K)
Market Value of Debt
Preferred Stock
Market Value of Debt

1998
8.00%
36.00%

1999
14.87%
8.00%
36.00%
20.00%
10.00%

1.00
5.10%
5.90%
11.00%

Cost of Debt
Cash Tax Rate
After-Tax Cost of Debt

8.50%
36.00%
5.44%

9.61%

Chosen Cost of Capital (K)

9.61%

2/26/2014, 8:23 PM

2002
14.87%
8.00%
36.00%
20.00%
10.00%

2003
14.87%
8.00%
36.00%
20.00%
10.00%

2004
14.87%
8.00%
36.00%
20.00%
10.00%

2005
14.87%
8.00%
36.00%
20.00%
10.00%

$15.00
100.00
$1,500.00
25.00%

Cost of Capital (K)

Non-Operating Assets

2001
14.87%
8.00%
36.00%
20.00%
10.00%

2000
$500.00
$0.00
$500.00

Beta
Risk-Free Rate
Market Risk Premium (MRP)
Cost of Equity

Current Stock Price

Number of Shares Outstanding
Market Value of Equity
Debt/Total Capital

2000
14.87%
8.00%
36.00%
20.00%
10.00%

$100.00

Page 2 of 10

213802645.xls.ms_office, Value Drivers

ValueLine Value Driver Calculations

Company Name:
Scenario:
Units:
Forecast Period
Last Historical Year
Last Year of Value Line Forecast
Sales Growth (G)
Sales
Annual Sales Growth (G)
Operating Profit Margin (P)
ValueLine Operating Profit Margin
ValueLine Operating Profit
Depreciation
Operating Profit
Operating Profit Margin
Average Operating Profit Margin

Acme Corporation
Base Case
($ millions)

2000
2005
2000
$1,000.00

2000
10.26%
$102.59
$22.59
$80.00
8.00%

Chosen Operating Profit Margin (P)

Operating Cash Tax Rate (T)
Tax Rate
Average Tax Rate

Chosen Incremental Fixed Capital Investment (F)

2/26/2014, 8:23 PM

2005
10.26%
$205.17
$45.17
$160.00
8.00%
8.00%
8.00%

2000
36.00%

Chosen Operating Cash Tax Rate (T)

Incremental Fixed Capital Investment (F)
Capital Spending per Share
# of Shares
Capital Spending
Depreciation
Spending-Depreciation
Yearly Incremental Sales
Inc. Fixed Capital Investment (F)
Average F

2005
$2,000.00
14.87%

2005
36.00%
36.00%

Incremental Working Capital Investment (W)

Historical Approach:
Current Operating Assets
Current Operating Liabilities
Operating Working Capital
Incremental Working Capital
Sales
Incremental Sales
W (Historical)
Forecast Approach:
Working Capital
Change in Sales
W (Forecast)
Chosen Incremental Working Capital (W)
Cost of Capital (K)
Total Debt
Preferred Stock
Market Value of Debt
Beta
Risk-Free Rate
Market Risk Premium (MRP)
Cost of Equity

1999
$114.60
$22.84
$91.76
$870.55

2000
$104.71

2000
$130.94
$26.23
$104.71
$12.95
$1,000.00
$129.45
10.00%
2005
$204.71
$1,000.00
10.00%
10.00%
2000
$500.00
$0.00
$500.00
1.00
5.10%
5.90%
11.00%

36.00%
2000
$0.48
100.00
$48.48
$22.59
$25.89
$129.45
20.00%

2005
$0.97
100.00
$96.95
$45.17
$51.78
$258.90
20.00%
20.00%
20.00%

Cost of Debt
After-Tax Cost of Debt
Current Stock Price
Number of Shares Outstanding
Market Value of Equity
Debt/Total Capital
Cost of Capital (K)

Non-Operating Assets

3 of 10

8.50%
5.44%
$15.00
100.00
$1,500.00
25.00%
9.61%
2000
$100.00

213802645.xls.ms_office, ValueLine

Peer Group Beta Analysis

Peers for:

Acme Corporation

Peer Group Weighted Average

Relevered Beta:

0.88
Peer Information

Peers
Peer 1
Peer 2
Peer 3
Peer 4

2/26/2014, 8:23 PM

Peer
(Levered)
Beta
0.75
1.22
1.10
1.23

Peer
Operating
Peer Debt to Cash Tax
Equity %
Rate %
15.4%
35.0%
124.0%
37.2%
5.8%
36.0%
45.1%
38.0%

Unlevered
Beta
0.68
0.69
1.06
0.96

4 of 10

Company Information
Company
Operating
Target Debt Cash Tax
to Equity %
Rate %
5.8%
35.0%
5.8%
35.0%
5.8%
35.0%
5.8%
35.0%

Relevered
Beta
0.71
0.71
1.10
1.00

Weight
1.00
1.00
1.00
1.00

213802645.xls.ms_office, Peer Group Beta

Shareholder Value Calculator

Company Name:
Scenario:
Units:
Shareholder Value
Shareholder Value Per Share
Value Growth Duration (Years)
Residual Value
Value Drivers:
Historical Sales
Sales Growth (G)
Operating Profit Margin (P)
Operating Cash Tax Rate (T)
Incremental Fixed Capital Investment (F)
Incremental Working Capital Investment (W)
Cost of Capital (K)
Non-Operating Assets
Market Value of Debt
Number of Shares Outstanding

Acme Corporation
Base Case
$ millions
$344.8
$3.45
5
NOPAT/K
2001

2002

2003

2004

2005

14.87%
8.00%
36.00%
20.00%
10.00%
9.61%
$100.00
$500.00
100.00

14.87%
8.00%
36.00%
20.00%
10.00%
9.61%
$100.00
$500.00
100.00

14.87%
8.00%
36.00%
20.00%
10.00%
9.61%
$100.00
$500.00
100.00

14.87%
8.00%
36.00%
20.00%
10.00%
9.61%
$100.00
$500.00
100.00

14.87%
8.00%
36.00%
20.00%
10.00%
9.61%
$100.00
$500.00
100.00

1,148.7
1,056.8
91.9

1,319.5
1,214.0
105.6

1,515.7
1,394.5
121.3

1,741.1
1,601.8
139.3

2,000.0
1,840.0
160.0

Cash Taxes
Net Operating Profit After Taxes (NOPAT)

33.1
58.8

38.0
67.6

43.7
77.6

50.1
89.1

57.6
102.4

Fixed Capital Investment

Working Capital Investment
Cash Flow (CF)

29.7
14.9
14.2

34.2
17.1
16.3

39.2
19.6
18.7

45.1
22.5
21.5

51.8
25.9
24.7

Operating Cash Flows & Value:

Sales
Operating Costs
Operating Profit

Discount Factor

2000
$1,000.0

$1,000.0

0.9123

0.8323

0.7594

0.6928

0.6320

Present Value (PV) of CF

13.0

13.6

14.2

14.9

15.6

Cumulative PV of CF

13.0

26.5

40.8

55.7

71.3

Residual Value (NOPAT Perpetuity Method)

1,065.6

PV of Residual Value
Non-Operating Assets

673.5
100.0

Corporate Value
Market Value of Debt

844.8
500.0

Shareholder Value (SHV)

$344.8

Share Price

2/26/2014, 8:23 PM

$3.45

5 of 10

213802645.xls.ms_office, Shareholder Value

Sensitivities Analysis
Company Name:
Scenario:

Acme Corporation
Base Case
Range

Value Driver
Sales Growth (G)
Operating Profit Margin (P)
Operating Cash Tax Rate (T)
Incremental Fixed Capital Investment (F)
Incremental Working Capital Investment (W)
Cost of Capital (K)

Multiplicative
Modifier
10.0%
10.0%
10.0%
10.0%
10.0%
10.0%

Value
14.9%
8.0%
36.0%
20.0%
10.0%
9.6%

Additive

Modifier
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%

Low Range
13.9%
7.0%
35.0%
19.0%
9.0%
8.6%

High Range
15.9%
9.0%
37.0%
21.0%
11.0%
10.6%

Sensitivity Analysis Results

Change in Shareholder Value
$ millions

Multiplicative
Low
($24.0)
($88.1)
$49.5
$13.6
$6.8
$99.4

Sales Growth (G)

Op. Profit Margin (P)
Cash Tax Rate (T)
Incr. Fixed Cap. (F)
Incr. Working Cap. (W)
Cost of Capital (K)

Additive
High
$27.6
$96.9
($54.5)
($14.9)
($7.5)
($89.3)

Low
($17.8)
($121.1)
$15.1
$7.5
$7.5
$115.5

Multiplicative Sensitivity

Range
High
$18.4
$121.1
($15.1)
($7.5)
($7.5)
($92.5)

Additive Sensitivity

Sales
Growth (G)

Sales
Growth (G)

Sales
Growth (G)
Op. Profit
Margin (P)

Cash Tax
Rate (T)

Incr. Fixed
Cap. (F)
Incr.
Working
Cap. (W)
Cost of
Capital (K)
$0

$50

$100

$150

-$150

Cash Tax
Rate (T)

Incr. Fixed
Cap. (F)

Incr. Fixed
Cap. (F)

Incr.
Working
Cap. (W)

Incr.
Working
Cap. (W)
Cost of
Capital (K)

-$100

Change in Shareholder Value

Op. Profit
Margin (P)

Cash Tax
Rate (T)

Cost of
Capital (K)
-$50

High
$18.4
$121.1
($15.1)
($7.5)
($7.5)
($92.5)

Range Sensitivity

Op. Profit
Margin (P)

-$100

Low
($17.8)
($121.1)
$15.1
$7.5
$7.5
$115.5

-$50

$0

$50

$100

$150

-$150

-$100

Change in Shareholder Value

-$50

$0

$50

$100

$150

Change in Shareholder Value

Percentage Change in Shareholder Value

Multiplicative
Low
-7.0%
-25.5%
14.4%
3.9%
2.0%
28.8%

Sales Growth (G)

Op. Profit Margin (P)
Cash Tax Rate (T)
Incr. Fixed Cap. (F)
Incr. Working Cap. (W)
Cost of Capital (K)

Additive
High
8.0%
28.1%
-15.8%
-4.3%
-2.2%
-25.9%

Low
-5.2%
-35.1%
4.4%
2.2%
2.2%
33.5%

Multiplicative Sensitivity

Sales
Growth (G)

Op. Profit
Margin (P)

Cash Tax
Rate (T)

Incr. Fixed
Cap. (F)
Incr.
Working
Cap. (W)
Cost of
Capital (K)

2/26/2014, 8:23 PM

Sales
Growth (G)
Op. Profit
Margin (P)

Cash Tax
Rate (T)

Cash Tax
Rate (T)

Incr. Fixed
Cap. (F)

Incr. Fixed
Cap. (F)

Incr.
Working
Cap. (W)

Incr.
Working
Cap. (W)

Cost of
Capital (K)

0%

20%

High
5.3%
35.1%
-4.4%
-2.2%
-2.2%
-26.8%

Range Sensitivity

Op. Profit
Margin (P)

-20%

Low
-5.2%
-35.1%
4.4%
2.2%
2.2%
33.5%

Additive Sensitivity

Sales
Growth (G)

-40%

Range
High
5.3%
35.1%
-4.4%
-2.2%
-2.2%
-26.8%

40%

-40%

Cost of
Capital (K)

-20%

0%

6 of 10

20%

40%

-40%

-20%

0%

20%

40%

213802645.xls.ms_office, Sensitivities Analysis

Current Multiples Analysis

Company Name:
Units:

Peer Companies
Peer 1
Peer 2
Peer 3
Peer 4
Peer 5

Acme Corporation
$ thousands

Share Price
$21.0
$15.0
$4.0
$13.0
$30.0

Peer Total

Number of Market Equity

Shares
Value
2,153.0
$45,213.0
13,670.0
$205,050.0
14,659.0
$58,636.0
4,230.0
$54,990.0
6,661.0
$199,830.0

Debt
$11,301.0
$45,001.0
$33,294.0
$14,993.0
$36,121.0

Corporate
Value
$56,514.0
$250,051.0
$91,930.0
$69,983.0
$235,951.0

Sales
$87,003.0
$322,200.0
$157,500.0
$101,954.0
$210,280.0

EBITDA
$5,023.0
$23,670.0
$4,188.0
$4,999.0
$16,403.0

Earnings
$4,100.0
$19,332.0
$6,311.0
$600.0
$6,008.0

Book Equity
Value
$21,006.0
$93,002.0
$40,000.0
$22,091.0
$73,009.0

$563,719.0

$140,710.0

$704,429.0

$878,937.0

$54,283.0

$36,351.0

$249,108.0

$34,711.6

$1,657.7

$1,449.6

$15,550.1

Acme Corporation

Peer Group Average Ratios

Sales Multiple
0.80
EBITDA Multiple
12.98
P/E Multiple
15.51
Market/Book Ratio
2.26
Average Implied Price

2/26/2014, 8:23 PM

$4,750.0

Implied Equity Prices

$23,069.8
$16,761.9
$22,479.9
$35,189.1
$24,375.2

Implied Corporate Prices

$27,819.8
$21,511.9
$27,229.9
$39,939.1
$29,125.2

Page 7 of 10

Current Multiples, 213802645.xls.ms_office

Transaction Multiples Analysis

Company Name:
Units:

Acme Corporation
$ thousands

Acquirer
Company 1
Company 2
Company 3
Company 4

Target
Target 1
Target 2
Target 3
Target 4

Peer Total

Transaction
Market
Date
Equity Value
6/11/2001
$5,100.0
4/20/2001
$114,900.0
11/5/2000
$37,100.0
7/11/2000
$2,400.0

Debt
$2,134.0
$90,047.1
$13,774.6
$1,116.0

Corporate
Value
$7,234.0
$204,947.1
$50,874.6
$3,516.0

Sales
$7,350.0
$163,909.0
$52,253.0
$3,500.0

EBITDA
$455.0
$9,600.0
$2,319.0
$120.0

Earnings
$267.0
$6,047.0
$2,593.0
$3.0

Book Equity
Value
$11,730.0
$49,740.0
$16,228.0
$1,090.0

$159,500.0

$107,071.7

$266,571.7

$227,012.0

$12,494.0

$8,910.0

$78,788.0

$34,711.6

$1,657.7

$1,449.6

$15,550.1

Acme Corporation

Peer Group Average Acquisition Ratios

Sales Multiple
1.17
EBITDA Multiple
21.34
P/E Multiple
17.90
Market/Book Ratio
2.02
Average Implied Price

2/26/2014, 8:23 PM

$4,750.0

Implied Equity Prices

$36,010.5
$30,618.6
$25,949.6
$31,479.9
$31,014.7

Implied Corporate Prices

$40,760.5
$35,368.6
$30,699.6
$36,229.9
$35,764.7

Page 8 of 10

213802645.xls.ms_office, Transaction Multiples

Capital Structure Analysis

Company Name:
Scenario:
Units:

Acme Corporation
Base Case
$ millions

Assumptions
Pre-Tax Interest Rate
Cash Tax Rate
Percentage Repayment
Repayment Period (Years)
Appropriate Debt Amount
Selected Debt Amount

8.50%
36.0%
50.0%
5
$130.7
$130.7

Adjust SHV Cash Flows for Downside

Change
Sales Growth (G)
0.0%
Operating Profit Margin (P)
0.0%
Cash Tax Rate (T)
0.0%
Incremental Fixed Capital Inv. (F)
0.0%
Incremental Working Capital Inv. (W)
0.0%
Downside Cash Flow Analysis
Year
Downside Cash Flows
Common & Preferred Dividends
Cash Available to Pay Debt
After Tax Interest
Principal Repayment
Principal Outstanding
Percentage of Initial Debt

$130.7
100.0%

Downside Leverage Ratios

Equity Value
Debt / Equity Ratio
Debt / Total Capital Ratio

$344.80
37.9%
27.5%

2000

2001
$14.20
$0.00
$14.2
$7.1
$7.1
$123.6
94.6%

2002
$16.32
$0.00
$16.3
$6.7
$9.6
$114.0
87.2%

2003
$18.74
$0.00
$18.7
$6.2
$12.5
$101.4
77.6%

2004
$21.53
$0.00
$21.5
$5.5
$16.0
$85.4
65.4%

2005
$24.73
$0.00
$24.7
$4.6
$20.1
$65.3
50.0%

8.8

10.9

14.1

19.2

28.8

$91.90
$0.00
$91.90
1.34

$105.56
$0.00
$105.56
1.08

$121.26
$0.00
$121.26
0.84

$139.29
$0.00
$139.29
0.61

$160.00
$0.00
$160.00
0.41

Interest Coverage
EBIT
Depreciation & Amortization
EBITDA
Debt / EBITDA Multiple

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9 of 10

213802645.xls.ms_office, Capital Structure

Peer Group Capital Structure Analysis

Peers for:
Units:

Acme Corporation
$ millions
Book Leverage

Peers
Peer 1
Peer 2
Peer 3
Peer 4
Peer 5

Book Value
of Debt
$43.1
$150.3
$25.2
$5.0
$69.3

Book Value
of Equity
$67.7
$134.0
$58.9
$12.0
$5.6

Book Debt to
Total Capital
38.9%
52.9%
30.0%
29.4%
92.5%

Average

Market Value
of Debt
$43.1
$150.3
$25.2
$5.0
$69.3

Market Leverage
Number of
Shares
Market Value
Share Price
Outstanding
of Equity
$4.20
22.7
$95.3
$16.70
14.0
$233.8
$11.00
9.7
$106.7
$5.60
12.3
$68.9
$21.20
8.8
$186.6

51.3%

Market Debt to
Total Capital
31.1%
39.1%
19.1%
6.8%
27.1%

29.8%

Debt to Total Capital

29.8%

Average

51.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

Market Value
Book Value

27.1%

Peer 5

92.5%
6.8%

Peer 4

29.4%
19.1%

Peer 3

30.0%
39.1%

Peer 2

52.9%
31.1%

Peer 1

38.9%
0%

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20%

40%

60%

10 of 10

80%

100%

213802645.xls.ms_office, Peer Group Cap. Struct.