Segur, Webb C. (433 West 54 Street, New York, NY, 10019, US)
Burdge, Bradley G. (19000 Perrone Drive, Germantown, MD, 20874, US)
Canali, Luigi J. F. (14209 Cervantes, Darnestown, MD, 20874, US)
| 1. | A method of computing a fair market value for an enterprise, comprising: establishing an Internet connection between a user and an enterprise valuation Web site; communicating from the user to the enterprise valuation Web site current and projected financial data pertaining to the enterprise; communicating from the user to the enterprise valuation Web site a list of selected comparable companies; computing at the enterprise valuation Web site a first value for the enterprise from the current and projected financial data; computing at the enterprise valuation Web site a second value for the enterprise from the list of selected comparable companies; and computing a weighted average of the first value and the second value to produce the fair market value for the enterprise. |
| 2. | The method of claim 1, further comprising: communicating the fair market value for the enterprise to the user; and storing the fair market value for the enterprise at the enterprise valuation Web site. |
| 3. | The method of claim 2, further comprising: revising the current and projected financial data pertaining to the enterprise; computing at the enterprise valuation Web site a revised first value for the enterprise from the revised current and projected financial data; and computing a weighted average of the revised first value and the second value to produce the fair market value for the enterprise. |
| 4. | The method of claim 1, wherein computing at the enterprise valuation Web site a first value for the enterprise from the current and projected financial data comprises: computing a net present value for a discounted cash flow for the enterprise from the current and projected financial data; computing a present terminal value for the enterprise from the current and projected financial data; adding the net present value for the discounted cash flow to the present terminal value for the enterprise to produce a total invested capital for the enterprise; and adding an amount of cash on hand to the total invested capital and subtracting an amount of current debt for the enterprise to produce the first value for the enterprise. |
| 5. | The method of claim 4, wherein computing a net present value for a discounted cash flow for the enterprise from the current and projected financial data comprises: computing a cost of capital for the enterprise; and discounted a cash flow for the enterprise by the cost of capital for the enterprise. |
| 6. | A method of computing a fair market value for an enterprise over the Internet, comprising: communicating from a user computer to an enterprise valuation Web site a list of comparable companies; selecting at the user computer one or more selected comparable companies from the list of companies; communicating from the user computer to the enterprise valuation Web site current and projected financial data for the enterprise; computing at the enterprise valuation Web site a first total invested capital value for the enterprise from the current and projected financial data for the enterprise; computing at the enterprise valuation Web site a total invested capital value for the one or more selected comparable companies; computing a performance multiple for each of the one or more selected comparable companies by dividing the total invested capital value for each of the one or more selected comparable companies by a performance indicator value for each of the one or more selected comparable companies; computing a second total invested capital value for the enterprise by multiplying the performance multiple by a value of the performance indicator for the enterprise; computing a weighted average of the first and second total invested capital values; and adding an amount of cash on hand to the weighted average of the first and second total invested capital values, and subtracting an amount of current debt for the enterprise, to produce the fair market value for the enterprise. |
| 7. | The method of claim 6, further comprising; selecting at the user computer one or more additional companies not belonging to the list of comparable companies. |
| 8. | In a distributed computing environment comprising a host computer connected with a user computer, a method of computing a fair market value for an enterprise, comprising: communicating from the user to the host computer a list of comparable companies for computing the fair market value for the enterprise; selecting at the user computer one or more selected comparable companies from the list of comparable companies; communicating from the user to the host computer current and projected financial data for the enterprise and the one or more selected comparable companies; computing at the host computer a first total invested capital value for the enterprise from the current and projected financial data; computing at the host computer a second total invested capital value for the enterprise from the list of selected comparable companies; and computing a weighted average of the first and the second total invested capital value; and adding an amount of cash on hand to the weighted average of the first and second total invested capital values, and subtracting an amount of current debt for the enterprise, to produce the fair market value for the enterprise. |
| 9. | The method of claim 8, further comprising; selecting at the user computer one or more additional companies not belonging to the list of comparable companies. |
| 10. | An enterprise fair market valuation method comprising: applying a first valuation algorithm to information for a subject enterprise to obtain a first result; applying a second valuation algorithm to information for at least one public company to obtain a second result; and generating a fair market value for the subject enterprise based upon a combining of the first and second results. |
| 11. | The method of claim 10 wherein the applying a first valuation algorithm includes accounting for dynamic aspects of the subject enterprise. |
| 12. | The method of claim 10 wherein the applying a first valuation algorithm includes accounting for current cash flow. |
| 13. | The method of claim 10 wherein the applying a first valuation algorithm includes accounting for projected cash flow. |
| 14. | The method of claim 13 further including : discounting the projected cash flow. |
| 15. | The method of claim 11,12,13 or 14 wherein the accounting is for a specified period of time. |
| 16. | A method of reporting on a value of a private enterprise comprising: generating at least two total invested capital values using at least two algorithms; combining the at least two total invested capital values according to a weighting to obtain a subject enterprise weighted total invested capital amount; and providing an output valuation report, including a fair market value for the private enterprise generated using the subject enterprise weighted total invested capital amount. |
| 17. | The method of claim 16 further comprising: adding a cash amount to the subject enterprise weighted total invested capital amount. |
| 18. | The method of claim 16 further comprising: subtracting a debt amount from the subject enterprise weighted total invested capital amount. |
| 19. | The method of claim 16 wherein a first of at least two algorithms includes: generating a weighted average cost of debt (WACD). |
| 20. | The method of claim 19 wherein the weighted average cost of debt is generated according to WACD = ( [Average Cost of Debt] * [1Tax Rate]) * (Debt/Capital). |
| 21. | The method of claim 20 wherein the Debt/Capital is generated by averaging Debt/Capital ratios for multiple comparable enterprises. |
| 22. | The method of claims 20 or 21 wherein the average cost of debt is generated as an average weighted interest rate of longterm and shortterm debt. |
| 23. | The method of claim 20 or 21 wherein the average cost of debt is a current prime lending rate. |
| 24. | The method of claim 16 wherein a first of the at least two algorithms includes: generating a weighted average cost of equity (WACE). |
| 25. | The method of claim 24 wherein the weighted average cost of equity is generated according to WACE = [Adjusted Cost of Equity] * (Equity/Capital) wherein Adjusted Cost of Equity = [Risk Free Rate] + [Comparable Equity Risk Premium] + [Small Stock Premium] + [Enterprise Specific Risk Premium]. |
| 26. | The method of claim 25 wherein the Equity/Capital is generated by averaging Equity/Capital ratios for multiple comparable enterprises. |
| 27. | The method of claim 19 or 24 further comprising; generating a Weighted Average Cost of Capital (WACC). |
| 28. | The method of claim 27 wherein the WACC is generated according to WACC = WACD + WACE. |
| 29. | The method of claim 16,27 or 28 further comprising generating a net present value (NPV) of projected cash flow for the private enterprise over a time interval. |
| 30. | The method of claim 29 wherein the NPV is generated according to CashFlow (i)/ (l + WACC) 1 where x represents a specified time period. |
| 31. | The method of claim 16 wherein one of the at least two algorithms includes: generating one of the at least two total invested capital (TIC) values according to TIC = [Share Price] * [Number of Shares Outstanding] * [Control Premium] + [Debt] + [Preferred Stock] [Cash]. |
| 32. | The method of claim 16 wherein a first of the at least two algorithms is a comparable transaction algorithm. |
| 33. | The method of claim 16 or 32 wherein one of the at least two algorithms is an enterprise comparable algorithm. |
| 34. | The method of claim 32 or 33 wherein another of the at least two algorithms is a discounted cash flow algorithm. |
| 35. | A method of determining the value of a non publicly traded company comprising: evaluating financial information specific to the nonpublicly traded enterprise; evaluating financial information specific to at least one user identified publicly traded company; storing evaluation information; and transmitting a fair market value for the non publicly traded enterprise and a fair market value for equity for the nonpublicly traded enterprise. |
| 36. | The method of claim 10,16 or 35 further comprising: accessing time varying information. |
| 37. | The method of claim 36 wherein the accessing includes receiving at least one of an interest rate, a control premium, a prime lending rate, a Treasury Note interest rate, or a Risk Free Rate. |
| 38. | An entity evaluation process performed on a host computer to create a user viewable evaluation result comprising: analyzing, using the host computer, user supplied information for an entity to obtain a first result; analyzing comparable company information, based upon a user selection received at the host computer, to obtain a second result; creating a results file from a weighted combination of the first and second result; and transmitting summary results information to a user for viewing. |
| 39. | A method of obtaining a valuation for an enterprise comprising: receiving a list of SIC codes; selecting a SIC code from the list of SIC codes; receiving a list of companies having a company SIC code corresponding to the SIC code; selecting at least one company from the list of companies; transmitting data representing financial information for the enterprise for a specified period; and receiving summary results for the enterprise including the valuation. |
| 40. | The method of claim 39 further comprising; selecting a link associated with the summary results; and receiving a detailed valuation in response to the selecting. |
| 41. | The method of claim 39 or 40 further comprising: providing a selection identifying a methodology weighting to be applied in obtaining the valuation. |
| 42. | The method of claim 39 or 40 further comprising: receiving a previously stored results file. |
| 43. | A valuation system comprising: a valuation program constructed to, when executing on a host computer, i) compute at least two valuations, at least one of the valuations being based upon subject enterprise specific information and another of the valuations being an entity valuation including financial information for an enterprise other than the subject enterprise, ii) combine the at least two valuations to obtain a subject enterprise total invested capital result, iii) calculate a fair market value using the subject enterprise total invested capital result, for provision by the host computer to a user. |
| 44. | The system of claim 43 further comprising: a database associating at least one user email address with a stored file, the stored file including at least one of: a valuation parameter, the subject enterprise total invested capital result, the fair market value, a fair market value for the subject enterprise's equity, or detailed valuation results. |
| 45. | The system of claim 43 further comprising: a company database. |
| 46. | The system of claim 45 wherein the company database includes current valuation data for at least one publiclytraded company. |
| 47. | The system of claim 45 wherein the company database includes financial data for at least one publiclytraded company. |
| 48. | The system of claim 43 wherein the valuation program is further constructed to, when executing on a host computer, compute a performance multiple for the enterprise other than the subject enterprise. |
| 49. | The system of claim 48 wherein the performance multiple is equal to the entity valuation divided by a performance indicator. |
| 50. | The system of claim 49 wherein the performance indicator is selected from the group consisting of EBITDA, EBIT, Revenue, Debt Free Earnings, Debt Free Cash Flow, and Assets. |
| 51. | The system of claim 48 wherein the valuation program is further constructed to, when executing on the host computer, compute a second performance multiple for a second enterprise different from the subject enterprise and the enterprise. |
| 52. | The system of claim 51 wherein the valuation program is further constructed to, when executing on the host computer, compute a third performance multiple for an additional enterprise different from the subject enterprise, the enterprise and the second enterprise. |
| 53. | The system of claim 51 or 52 wherein the valuation program is further constructed to, when executing on the host computer, compute a mean of the performance multiples. |
| 54. | The system of claim 51,52 or 53 wherein the valuation program is further constructed to, when executing on the host computer, compute a median of the performance multiples. |
| 55. | The system of claim 51,52,53 or 54 wherein the valuation program is further constructed to, when executing on the host computer, compute a coefficient of variance for each of the performance multiples. |
| 56. | The system of claim 55 wherein the valuation program is further constructed to, when executing on the host computer, select one of the performance multiples based upon a coefficient of variance. |
| 57. | An entity valuation system comprising: a host computer including a web interface; a valuation program including at least two different evaluation methodologies running on the host computer; and an entity database containing stored information, the entity database being communicatively connected to the host computer, so that when the host computer receives financial information via the web interface for a subject enterprise, the valuation program will calculate a value for the subject enterprise using each of the at least two different evaluation methodologies based upon the financial information and information from the entity database. |
| 58. | The system of claim 57 wherein the entity database includes at least one of a SIC code, a company identifier, or a stock ticker symbol. |
| 59. | The system of claim 57 further including a user database. |
| 60. | The system of claim 57 further including a long term storage device. |
| 61. | The system of claim 60 wherein the long term storage device includes at least one of a user password, a user identifier; a prior subject enterprise valuation result, user supplied information related to the subject enterprise, a user selected of a SIC code, a user email address, or valuation parameters. |
| 62. | A system for providing a value for a private enterprise comprising: means for determining if data for a previous valuation exercise exists; means for adding a new entry into a user database; means for storing and providing comparable company data; means for receiving information about the private enterprise; means for generating a valuation by algorithmically combining prevailing market condition information, at least some comparable company data, and received information about the private enterprise; means for providing the valuation to a user; and means for storing the valuation. |
Description of the Related Art In business, there are several events which trigger a need to perform an accurate assessment of an enterprise's worth. For large capitalization companies, the stock market often provides a useful measure of an enterprise's value. However, for smaller or closely- held companies, partnerships, and sole-proprietorships, other approaches are needed. For example, an owner may wish to liquidate stock of a closely-held company. Or a company may wish to institute an employee stock ownership plan (ESOP) and needs to determine the value of the stock to be offered to the employees.
In response to these needs, methodologies have been developed for determining the worth of enterprises, such as small and medium size companies, which the stock market cannot effectively value. Computerized programs and methods have been developed which allow a user to enter financial data and other specific parameters of a subject enterprise, and which output an a fair market
value for the enterprise. These valuation software programs are typically either owned by business consultants or financing companies, or in some cases may be sold to individual users.
However, these valuation programs suffer from several drawbacks. First, many small enterprises will very rarely have a need to perform an enterprise valuation-perhaps only once in many, many years. In that case, the costs of purchasing, installing, and maintaining a software program that is used only once or twice is not efficient or cost-effective, especially for a very small enterprise. Second, access to these valuation programs is not ubiquitous. A user must have available a computer either having the valuation program installed thereon, or be connected to a network, such as a known distributed computing environment of the prior art, for example, as described in U. S. Patent No. 5, 715,453, U. S. Patent No. 5,794,230 and/or W09833307A1, where the program is hosted. Third, these tools are often simplistic and do not provide a thorough approach to calculating an enterprise's worth, not taking into account more than one method of valuation, and the unique and dynamic attributes of a small enterprise.
Fourth, typically a valuation program operates with certain assumptions about market conditions, such as interest rates, which must be updated to reflect current conditions each time that a valuation is being performed. For a stand-alone installation, this typically is done manually by user entry, requiring every user of the program to obtain this information on his own.
Accordingly, there is a need for a method of
enterprise valuation which is efficient, ubiquitous, automated and sophisticated. Other and further objects and advantages of the present invention will appear hereinafter.
SUMMARY OF THE INVENTION The present invention comprises an automated on- line method of enterprise valuation.
In one aspect of the invention, a distributed computing environment hosts an enterprise valuation program for allowing multiple users to perform an enterprise valuation process remotely. Preferably, an Internet user performs an automated on-line method of enterprise valuation via an enterprise valuation Web site which hosts an enterprise valuation program. Any user with access to the Internet may interact with and use the online program to perform an enterprise valuation exercise. Advantageously, the single Web site can simultaneously execute enterprise valuation computations for many users located remotely throughout the world. Also, a user can perform an enterprise valuation exercise by interacting with the enterprise valuation program without downloading any dedicated software onto his or her computer, for example, via a Web browser interface. Preferably, however, a user may store the valuation data and valuation results for a particular enterprise valuation exercise on a remote storage device associated with the distributed computing system, such as an Internet Web site. The distributed computing system also includes security features to prevent unauthorized access to a user's valuation data.
In another aspect of the invention, an enterprise
valuation program employs multiple valuation algorithms to produce a more reliable and robust enterprise valuation. Preferably, the enterprise valuation program produces a valuation for a subject enterprise by valuation algorithms which take into account the market values of comparable companies, and by analyzing dynamic aspects of the subject enterprise, such as the subject enterprise's current and projected discounted cash flow over a period of some years. Users provide valuation assumptions, such as financial data for the subject enterprise, and the enterprise valuation process generates output values for the each subject enterprise.
In yet another aspect of the invention, an enterprise valuation process executed in a distributed computing environment automates the process of valuing an enterprise. Time-varying market-based variables are automatically entered into the enterprise valuation process without requiring user entry. Preferably, market assumptions, such as discount interest rate, control premium, etc. are automatically linked into an enterprise valuation program from external information sources, such as the Internet, such that each user does not have to locate and provide the information themselves. A current, updated database of public company valuation and financial information is maintained at a central location in the distributed computing system, accessible by many remote users, so that comparisons of public company values with a subject enterprise will be based on currently valid market data.
BRIEF DESCRIPTION OF THE DRAWINGS Figures 1A-D is a flowchart of an automated on-line enterprise valuation process.
Figure 2 shows an exemplary standard industry classification (SIC) database.
Figure 3 shows an exemplary comparable company database.
Figure 4 is an exemplary financial data form for entering financial data for the subject enterprise to be used in an automated on-line enterprise valuation process.
Figure 5 shows a flowchart for an enterprise valuation program.
Figure 6 shows a flowchart for a first embodiment of a valuation algorithm for an enterprise valuation program.
Figure 7 shows a flowchart for a second embodiment of a valuation algorithm for an enterprise valuation program.
Figures 8A-B show exemplary market value data and financial performance data for an exemplary comparable company which may be used by an automated on-line enterprise valuation process.
DESCRIPTION OF THE PREFERRED EMBODIMENTS A preferred embodiment of an automated on-line enterprise valuation process 100 is shown in Figure 1.
In the preferred embodiment described herein with respect to Figure 1, a user performs an automated enterprise valuation exercise using a user computer
connected remotely over the Internet with an enterprise valuation web site. Nevertheless, the invention is usable in any similar distributed computing environment having a host computer for hosting an enterprise valuation process in conjunction with a one or more user computers. Moreover, it is understood that the enterprise may be a company, a partnership, a sole- proprietorship, or a similar form of business.
In the preferred embodiment shown in Fig. 1, in a first step 102 a user establishes an Internet connection between a user computer and an enterprise valuation Web site which hosts an enterprise valuation program. The user may access the Web site with any standard Web browser program, such as INTERNET EXPLORER3 or NAVIGATOR@.
In a step 104, the enterprise valuation Web site presents the user with an option to perform an enterprise valuation by"clicking"his or her mouse on an embedded link displayed via the user's Web browser onto the user's computer screen. If in a step 106, the user"clicks"on the embedded link, then in a step 108, the enterprise valuation Web site launches an enterprise valuation program, such as that described in more detail with respect to Fig. 5 below. In the automated on-line enterprise valuation process 100, the enterprise valuation Web site will execute steps of the enterprise valuation program to compute a fair market value for a subject enterprise.
Next, in a step 110, the enterprise valuation Web site transmits back to the user a Web page containing a disclaimer, and an entry form for the user to enter a unique e-mail address and password to login to the
enterprise valuation Web site. In a step 112, the user enters the e-mail address and password and sends the data back to the enterprise valuation Web site. The e- mail address and password may be used by the user to return to the enterprise valuation Web site and retrieve data and results of previous enterprise valuation exercises, as will be described more fully below.
Then, in a step 114, the enterprise valuation Web site searches a user database to determine whether a user matching the e-mail address is in the user database. If not, then the process continues in a step 126 as described below.
If there is an entry in the user database matching the e-mail address, then in a step 116, the enterprise valuation Web site verifies whether the password entered by the user matches the corresponding password in the user database. If not, then in a step 118, the enterprise valuation Web site transmits to the user a Web page advising him or her that the password is incorrect and, returning to the step 110 so that the user may re-enter the e-mail address and password.
Preferably, the enterprise valuation Web site maintains a count of the number of consecutive incorrect login attempts for a particular e-mail address. In that case, once the number of consecutive incorrect login attempts exceeds a predetermined threshold (e. g., three), then all future login attempts with that e-mail address are denied and an e-mail message is automatically transmitted to the e-mail address, advising the user of the situation, perhaps advising them of procedures for re-opening the account.
If the e-mail address and password are found in the
user database, then in a step 120 then the database is accessed to determine if the enterprise valuation Web site has saved data for any previous valuation exercises which the user has performed. If so, then in a step 122, the enterprise valuation Web site transmits to the user a Web page including a list of file descriptions for previous valuation exercises which the enterprise valuation host computer has saved. The Web page presents the user with an option to perform a new valuation, or to open a saved valuation exercise and compute a new valuation result. In that case, in a step 124, the user transmits back to the enterprise valuation Web site a selection of either one of the previous valuation exercises, or a new valuation exercise. If the user selects one of the previous valuations, then the process proceeds to a step 154, as described below.
If the user selects a new enterprise valuation exercise, then the process continues at a step 132.
In the step 126, the enterprise valuation Web site transmits to the user a Web page indicating that no previous valuation exercises have been saved.
Preferably, the transmitted Web page presents the user with an option to perform a new valuation exercise, or to go back and re-enter his or her e-mail address and password. In a step 128, the user transmits back to the enterprise valuation Web site a request to either re- enter his or her e-mail address and password, or to perform a new valuation exercise. If the user requests an opportunity to re-enter his or her password, then the enterprise valuation process returns to the step 110.
If in the step 128 the user indicates that he or she wishes to perform a new valuation exercise, and if
the user's e-mail address was not found in the user database in the step 114, then in a step 130, a new entry is added into the user database with the user's e- mail address and password.
Then, in a step 132, the enterprise valuation program opens a Standard Industrial Classification ("SIC") code database which is to be used in the enterprise valuation process. Fig. 2 shows an exemplary SIC code database 200 containing a plurality of SIC code entries 210. In a step 134 the enterprise valuation Web site transmits a Web page to the user showing a list of SIC codes from the SIC code database and asking the user to select one of the SIC codes which most nearly matches the business in which the subject enterprise engages.
Preferably, the Web page also contains an entry blank for the user to enter a filename for storing the data and results for the valuation exercise for the subject enterprise. In a step 136, the user selects an SIC code from the SIC code list and transmits the selected SIC code back to the enterprise valuation Web site.
Preferably, the user also transmits a file description for the enterprise valuation Web site to store the data and results for the valuation exercise for the subject enterprise.
Next, in a step 138, the enterprise valuation Web site opens a company database which is to be used in the enterprise valuation process. Fig. 3 shows an exemplary company database 300 containing a plurality of comparable company entries 310. Advantageously, the enterprise valuation web site provides a current, updated database of public company valuation and financial information at a central location, accessible
by many remote users, so that comparisons of public company values with a subject enterprise will be based on currently valid market data.
In a step 140, the enterprise valuation Web site extracts from the company database those companies having an SIC code which matches the SIC code selected by the user in the step 136. In a step 142, the enterprise valuation Web site transmits a Web page to the user showing a list of comparable companies which were extracted from the company database having the same SIC code as the subject enterprise, and asking the user to select one or more of the companies which are most closely comparable to the subject enterprise.
In a step 144, the user selects one or more of the comparable companies, and then transmits to the enterprise valuation Web site a list of the selected comparable companies. Preferably, the enterprise valuation web site includes one or more entry lines wherein a user may select one or comparable companies of the user's choosing which do not have the same SIC code as the subject company. In that case, a user may manually enter a stock ticker symbol for one or more user-selected company (s) to be included in the selected comparable company list.
In a step 146, the enterprise valuation program stores those comparable companies selected by the user for later use in calculating a value for the subject enterprise. Preferably, during the subsequent steps 148 and 150 the user is presented with an option to return to the step 142 to edit the list of selected comparable companies.
In a next step 148, the enterprise valuation Web
site transmits to the user a financial data web page including a financial data form for entering specific financial information pertaining to the subject enterprise. The financial information includes data pertaining to the current and projected financial performance of the subject enterprise over a period of "X"years, preferably over a period of five years.
Preferably, the financial data web page and/or the financial data form includes information and instructions to assist the user to enter the proper data into the financial data form.
Fig. 4 shows an exemplary financial data form 400 which may be transmitted to a user to enter financial data for the subject enterprise. It should be understood that the form may be changed in many ways within the operation of the present invention, including changing the number of years for which data is supplied, changing the specific financial data which is entered, etc. The exemplary financial data shown on the financial data form 400 will be used to explain a preferred embodiment of the enterprise valuation program with respect to Fig. 5 below.
In a step 150, the user enters financial data for the subject enterprise into the financial data form via the user's Web browser interface. At this step, the user may also select an option to return to the step 142 and change the list of selected comparable companies.
In a step 152, the user transmits the completed financial data form to the enterprise valuation Web site.
In a step 154, the enterprise valuation Web site transmits to the user an assumptions Web page containing
a list of the parameters that will be used in a subsequent value calculation for the subject enterprise, based on the user's inputs in the steps 144 through 152.
The Web page presents the user with an option to accept the parameters and begin the calculations, or to return to either the steps 136,142 or 148 and change the SIC code, selected comparable companies or the subject enterprise's financial data. Alternatively, the user may be permitted to edit the data on the assumptions web page and transmit the edited data to the enterprise valuation web site. Preferably, the user is also presented on the assumptions web page with a default weight to be applied to each of a first and second valuation algorithms which are used by the enterprise valuation program to compute a fair market value for the enterprise. The user may edit the weights such that either the output of the first or the second valuation algorithm is given more weight when computing the fair market value of the enterprise. The user selected weights are then transmitted back to enterprise valuation web site.
In a step 156, the user indicates to the enterprise valuation Web site his or her approval of the list of valuation parameters that will be used in a subsequent value calculation for the subject enterprise. In a step 158, the enterprise valuation program creates a data file for saving the valuation parameters for the subject enterprise valuation exercise in a long term storage device (e. g., a hard disk) associated with the enterprise valuation Web site. The data files for enterprise valuation exercises are indexed at the enterprise valuation Web site by the e-mail address of
the user, and by the file description supplied by the user in the step 136.
Then, in a step 160, the enterprise valuation program computes valuation results, including an fair market value for the subject enterprise. Preferably, the enterprise valuation program computes the fair market value for the enterprise according to the process described below with respect to Fig. 5. Nevertheless, the actual valuation algorithms and methodology are transparent to the user other than, significantly, in the reliability and accuracy of the enterprise value which is produced thereby and supplied to the user.
Next, in a step 162, the enterprise valuation program creates a results file for saving the enterprise valuation results in a long term storage device (e. g., a hard disk) associated with the enterprise valuation Web site. The results files for all enterprise valuation exercises are indexed at the enterprise valuation Web site by the e-mail address of the user, and by the filename supplied by the user in the step 136.
Preferably, the results file is in a form suitable in a form for transmission to the user, such as one or more Web pages created using hyper text markup language (HTML) that are transmitted to the user for display via the user's Web browser. Alternatively, the data could be saved in a commonly-used electronic file format, such as ADOBE (D ACROBAT (E), or even a downloadable text file.
Next, in a step 164, the enterprise valuation Web site transmits to the user a summary results Web page showing a summary of the valuation results for the subject enterprise. Also, the Web page contains an embedded link identifying where on the enterprise
valuation Web site the more detailed valuation results are saved. Preferably, the summary results Web page indicates a fair market value for the subject enterprise, and also a fair market value for the subject enterprise's equity. Also preferably, the summary results Web page includes an embedded link whereby the user may start return to the step 104 at the start of the valuation process.
In a step 166 the user indicates either a desire to edit the valuation data or to view the detailed valuation results.
If the user clicks on the embedded link identifying where the more detailed valuation results are saved on the enterprise valuation Web site, then in a step 168, the enterprise valuation Web site transmits a Web page to the user containing more detailed valuation results.
Preferably, the more detailed valuation results may be presented to the user in a series of Web pages which are indexed by a detailed valuation results index Web page.
Figure 5 shows a flowchart 500 for an enterprise valuation program which may be used in the automated on- line valuation process 100. The enterprise valuation program uses at least two separate valuation algorithms to compute a fair market value for a subject enterprise.
In a preferred embodiment, each algorithm computes a total invested capital ("TIC") for the subject enterprise. The enterprise valuation program weighs the TIC computed by each algorithm, to arrive at a fair market value of the subject enterprise's TIC. Then, the enterprise valuation program computes a fair market value for the subject enterprise, FMVSubject Enterpriser as:
1) FMVsubjectEnterprise"TICsubjectEnterprise+Cash-Debt where Cash reflects the amount of net cash that the subject enterprise has on hand, and Debt reflects the current short-term and long-term debt of the subject enterprise.
A first enterprise valuation algorithm computes a TIC value for a subject enterprise on the basis of dynamic aspects of the subject enterprise's performance -preferably, the subject enterprise's discounted cash flow. A second enterprise valuation algorithm computes a value for a subject enterprise on the basis of established values of comparable companies.
Preferably, the first enterprise valuation algorithm of the enterprise valuation program computes a value for a subject enterprise from an analysis of the subject enterprise's discounted cash flow, based upon financial information provided by the user. In a preferred embodiment, a user provides financial information using the financial information form 400 shown in Fig. 4. The operation of the preferred embodiment of the first enterprise valuation algorithm, performing a discounted cash flow valuation on a subject enterprise, will be explained with respect to Fig. 5 and the exemplary financial data shown in Fig. 4.
In a first step 505 of a first enterprise valuation algorithm, the enterprise valuation program computes a Weighted Average Cost of Debt ("WACD") for the subject enterprise. The WACD is computed as follows: 2) WACD = ( [Average Cost of Debt] * [1-Tax Rate]) * (Debt/Capital).
Preferably, the Debt/Capital ratio is calculated as an average of the Debt/Capital ratios for all of the selected comparable companies, based on financial data available in the company database as shown, for example, in Fig. 9.
The enterprise valuation program uses Average Cost of Debt and Tax Rate values which reflect current market conditions at the time that the valuation exercise is being performed. In a preferred embodiment, the Average Cost of Debt is equal to the average weighted interest rate of long-term and short-term debt of the subject enterprise and is supplied by the user via the financial data form 400. Alternatively, the Average Cost of Debt may be equal to the current prime lending rate. In that case, preferably, the enterprise valuation program automatically periodically updates the prime lending rate used in its calculations to reflect current market conditions, for example, by downloading a prime interest rate value from an Internet Web site.
Similarly, the Tax Rate reflects the current prevailing tax rate for the subject enterprise, computed based upon financial data supplied in the financial data form 400 of Fig. 4. For example, if the Average Cost of Debt was 8.00% and the subject enterprise's tax rate was 38%, then, in the case of the financial data shown in Fig. 4, the enterprise valuation program would compute: WACD = ( [8.00] * [1-0. 38]) * percent Next, in a step 510, the enterprise valuation programs computes a Weighted Average Cost of Equity ("WACE") for the subject enterprise. The WACE is computed as follows:
3) WACE= [Adjusted Cost of Equity] * (Equity/Capital), where, 4) Adjusted Cost of Equity = [Risk Free Rate] + [Comparable Equity Risk Premium] + [Small Stock Premium] + [Enterprise Specific Risk Premium].
Preferably, the Equity/Capital ratio is calculated as an average of the Equity/Capital ratios for all of the selected comparable companies, based on financial data available in the company database as shown, for example, in Fig. 9.
The enterprise valuation program uses Risk Free Rate, Comparable Equity Risk Premium and Small Stock Premium values which reflect current market conditions at the time that the valuation exercise is being performed. For example, the Risk Free Rate may be equal to the current one year Treasury Note interest rate. In a preferred embodiment, the enterprise valuation program automatically periodically updates the Treasury Note interest rate used in its calculations to accurately reflect the current market value, for example, by downloading the Treasury Note interest rate value from an Internet Web site. Similarly, the Comparable Equity Risk Premium and Small Stock Premium values may be periodically updated at the enterprise valuation Web site to reflect current market conditions at the time that the valuation exercise is being performed.
Alternatively, default Comparable Equity Risk Premium and Small Stock Premium values may be provided by the enterprise valuation Web site, and the user may be
allowed to modify the default values though the financial data form 400.
Meanwhile, the Enterprise Specific Risk Premium may be derived from the subject enterprise's size relative to other companies in its line of business.
Alternatively, a default Enterprise Specific Risk Premium may be provided by the enterprise valuation Web site and the user may be allowed to modify the default value though the financial data form 400.
In the case of the financial data shown in Fig. 4, the enterprise valuation program would compute: Adjusted Cost of Equity = 5.33 + 14.80 + 2.50 + 2.00 = 24.63 %, and WACE = (24.63) * percent Next, in a step 515, the enterprise valuation program computes a Weighted Average Cost of Capital (WACC) for the subject enterprise. The WACC is computed as follows: 5) WACC = WACD + WACE In the case of the financial data shown in Fig. 4, the enterprise valuation program would compute: WACC = 2.35 + 13.64 = 16.00 percent Next, in a step 520, the enterprise valuation program computes a Net Present Value ("NPV") of the projected Cash Flow for the subject enterprise over the time interval between the present time and the year"X", each year's Cash Flow is obtained from data entered by the user on the financial data form 400. In a preferred embodiment,"X"is five (5). The NPV is computed by discounting the Cash Flow for each year from the present
through Year"X"by the WACC computed earlier, according to the formula: CashFlow (i)/ (1 + WACC)' In the case of the financial data shown in Fig. 4, the enterprise valuation program would compute: NPV-E [ (5. 1/ (1 + 0.1522)) + (6.0/ (1 + 0.1522) 2) + (6.9/ (1 + 0.1522) 3) + (7.8/ (1 + 0.1522) 4) + (8.7/ (1 + 0.1522) 5)] = 22.166 Next, in a step 525, the enterprise valuation program computes a future terminal value ("FTV") for the subject enterprise at year"X". The FTV is computed as follows: 7) FTV = [Year"X"Cash Flow] * [1 + Projected Growth Rate of Net Cash Flow]/ [WACC-Projected Growth Rate of Net Cash Flow], where both the"Year X'Cash Flow"and the"Projected Growth Rate of Net Cash Flow"are obtained from data entered by the user on the financial data form 400. The "Projected Growth Rate of Net Cash Flow"is the growth rate at which the enterprise's cash flows are projected to grow in perpetuity.
In the case of the financial data shown in Fig. 4, the enterprise valuation program would compute: FTV = [8.7] * 03] = 68.93 Then, in a step 530, the present terminal value (PTV) is computed by discounting the FTV by the WACC over the time interval between the present time and the
year"X", according to the formula: 8) PTV = FTV/ (1 + WACC) x In the case of the financial data shown in Fig. 4, the enterprise valuation program would compute: PTV = 5 = 32.82 Then, in a step 535, the first valuation algorithm of the enterprise valuation program computes a first Total Invested Capital (TIC1) value for the subject enterprise as: 9) TIC1 = NPV + PTV In the case of the financial data shown in Fig. 4, the enterprise valuation program would compute: TIC1 = 22.166 + 32.818 = 54.984 Accordingly, the enterprise valuation program computes a first TIC value for the subject enterprise using a first valuation algorithm based on dynamic aspects of the subject enterprise. In the preferred embodiment of a first valuation algorithm comprising steps 505 through 535, the enterprise valuation computes a value based upon dynamic financial data for the enterprise, e. g., current and projected cash flows; enterprise debt; capital expenditures; taxes; etc., and also reflecting prevailing market conditions, e. g., Risk Free Rate; Prime Lending Rate; Control Premium etc.
Next, the enterprise valuation program computes a second TIC value for the subject enterprise via a second valuation algorithm 550, using established values of comparable companies. In a first preferred embodiment, the second valuation algorithm 550 computes a second TIC
value for the subject enterprise on the basis of dynamically computed values of comparable publicly- traded companies from the then-current market capitalization and the financial performance of these comparable companies.
The first preferred embodiment of the second valuation algorithm 550 will now be described with respect to the flowchart 600 shown in Fig. 6. In a first step 605, the enterprise valuation program retrieves a list of selected comparable companies for computing a value for a subject enterprise. When operating with the automated on-line enterprise valuation process of Fig. 1, the list of selected comparable companies consists of companies having a same SIC code as the subject enterprise, and any other additional companies, that are selected by a user.
Next, in a step 610, the enterprise valuation program retrieves current valuation data and financial data for each of the selected comparable companies from the company database. Figs. 8A-B show valuation and financial data for an exemplary comparable company used in a preferred embodiment of the second valuation algorithm.
Next, in a step 615, the enterprise valuation program computes a TIC for each of the selected comparable companies. Preferably, the TIC is computed as: 10) TIC Comparable Company = [Share Price] * [Number of Shares Outstanding] * [Control Premium] + [Debt] + [Preferred Stock]- [Cash]
The Control Premium is a factor supplied by the enterprise valuation program and reflects a prevailing market value associated with acquiring sufficient shares of an enterprise to control it. In other words, the Control Premium reflects the market reality that a purchaser must pay a premium for an enterprise's shares over and above the existing market rate if he or she wishes to acquire sufficient shares to exercise control over the enterprise.
After computing a TIC value for each comparable company, then in a step 620, the enterprise valuation program computes a Mean and a Median TIC value for all of the selected comparable companies.
Next, in a step 625, the enterprise valuation program computes several performance multiples for the selected comparable companies based on performance indicators from the financial data in the financial data database of Fig. 9, and the TIC values computed in step 615. Each performance multiple corresponds to a particular performance indicator, and may be expressed as: 11) Performance Multiple = TIC/Performance Indicator In a preferred embodiment, using the performance indicators shown in Fig. 9, the enterprise valuation program computes for each comparable company the following performance multiples: TIC/EBITDA; TIC/EBIT; TIC/Revenue; TIC/ (Debt Free Earnings); TIC/ (Debt Free Cash Flow); and TIC/Assets, where EBIT is Earnings Before Interest and Taxes, and EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization.
After computing the performance multiples for each comparable company, then in a step 630, the enterprise valuation program computes a Mean and a Median each of the performance multiples.
Next, in a step 635, the enterprise valuation program computes a coefficient of variance among the selected comparable companies for each performance multiple. The coefficient of variance is inversely proportional to the correlation of the performance multiple among the selected comparable companies.
Accordingly, the performance multiple having the lowest coefficient of variance can be presumed to be the most consistent and reliable indicator for determining the fair market value of the selected comparable companies and the subject enterprise.
Accordingly, in step 640, the enterprise valuation program selects a performance multiple having a lowest coefficient of variance to be used to compute a second TIC value for the subject enterprise. For example, if the selected performance multiple is TIC/EBITDA, then the second TIC value for the subject enterprise can be obtained by multiplying the median TIC/EBITDA value for the selected comparable companies, by the EBITDA for the subject enterprise obtained from the financial data form 400. However, in a preferred embodiment, the enterprise valuation program also compensates for factors such as the relative size and performance of the subject enterprise in comparison to the selected comparable companies, when computing a second TIC value for the subject enterprise.
Accordingly, in a preferred embodiment, in a step 645, the enterprise valuation program computes a Public
Comparable Adjustment Factor. In a preferred embodiment, the Public Comparable Adjustment Factor is a sum of a Lack of Marketability Adjustment, an enterprise Size Adjustment, an enterprise Performance Adjustment, and a Transition Risk/Other Adjustment.
The Lack of Marketability Adjustment reflects a discounted value for the subject enterprise, compared to the selected comparable companies, based on a reduced liquidity for an investment in the subject enterprise.
For example, where the subject enterprise is not publicly traded and where the selected comparable companies are publicly traded, the Lack of Marketability Adjustment reflects the fact that liquidity is valued by investors, and that an investment in the subject enterprise is less liquid and consequently has a reduced value.
The Enterprise Size Adjustment compensates for the relative size of the subject enterprise, compared to the selected comparable companies in the same market, recognizing that a larger company with greater assets and market share may typically command a premium in price over smaller enterprise with less market power.
The Enterprise Performance Adjustment compensates for significant disparities in profit, cash flow, or other performance measurements, relative to size, versus the selected comparable companies. In other words, if the subject enterprise is performing significantly below the level of the selected comparable companies, after adjusting for relative size, then the value of the subject enterprise may be even further discounted.
The Transition Risk/Other Adjustment reflects the reality that a purchase or major financial transaction
for the subject enterprise may introduce inefficiencies or risks for the subject enterprise's future performance, and the subject enterprise's value should be discounted by this risk. Also, if there are other factors which disadvantage the subject company relative to its market competitors, this can be compensated for through applying this discount.
In a preferred embodiment, default Lack of Marketability Adjustment, Enterprise Size Adjustment, Enterprise Performance Adjustment, and Transition Risk Adjustment values may be provided to a user by the enterprise valuation Web site, for example, in the step 148 described above with respect to the automated on- line enterprise valuation process of Fig. 1. In that case, the user may be allowed to modify the default values though the financial data form 400.
Next, in a step 650, the first embodiment of the second valuation algorithm 550 for the enterprise valuation program computes a second TIC value for the subject enterprise. The second TIC value is computed by multiplying the median value of the selected performance multiple by the corresponding performance indicator for the subject enterprise, and then adjusting the result by the Public Comparable Adjustment Factor. This may be expressed as: 12) TIC2A = [MEDIAN (TIC/Performance Indicator) comparable Companies] * [Public Comparable Adjustment Factor] * [(Performance Indicator) Subject Enterprise] So, for example, if the TIC/EBITDA performance multiple has the lowest coefficient of variance among
the selected comparable companies, then the enterprise valuation program computes the median value of the TIC/EBITDA performance multiple, and: TIC2A = [MEDIAN (TIC/EBITDA) Comparable Companies] * [Public Comparable Adjustment Factor] * [EBITDA subject Enterprise] In a second preferred embodiment, the second valuation algorithm 550 computes a value for the subject enterprise on the basis of established transactional values of comparable companies, together with the financial performance of these comparable companies.
The second preferred embodiment will now be described with respect to the flowchart 700 shown in Fig. 7. In a first step 705, the enterprise valuation program retrieves a list of selected comparable company transactions for computing a value for a subject enterprise. When operating with the automated on-line enterprise valuation process of Fig. 1, the list of selected comparable company transactions includes information regarding transactions involving a large portion or all of the equity for comparable companies, selected by the user, having a same SIC as the subject enterprise.
Next, in a step 710, the enterprise valuation program retrieves from the company database a transaction value and financial data for each of the comparable companies from the selected comparable company transaction list. In a preferred embodiment, the transaction value is the value of the recent sale of a large portion or all of the equity of the company, and the financial data includes the data shown in Fig. 9.
Next, in a step 715, the enterprise valuation
program computes a TIC for each of the companies in the selected comparable company transaction list.
Preferably, the TIC is computed as: 13) TIC Comparable Company = [Transaction Value] + [Debt]- [Cash] The next steps 720 through 745 are the same as the steps 625 through 645 in the first preferred embodiment of the second valuation algorithm 550.
Next, in a step 750, the second embodiment of the second valuation algorithm 550 for the enterprise valuation program computes a second TIC value for the subject enterprise. The second TIC value is computed by multiplying the median value of the selected performance multiple by the corresponding performance indicator for the subject enterprise, and then adjusting the result by the Public Comparable Adjustment Factor. This may be expressed as: 14) TIC2B = [MEDIAN (TIC/Performance Indicator) comparable Transactions] * [Public Comparable Adjustment Factor] * [(Performance Indicator) Subject Enterprise] So, for example, if the TIC/EBITDA performance multiple has the lowest coefficient of variance among the comparable companies in the selected comparable company transaction list, then the enterprise valuation program computes the median value of the TIC/EBITDA performance multiple, and: TIC2B = [MEDIAN (TIC/EBITDA) comparable Transactions] * [Public Comparable Adjustment Factor] * [EBITDA Subject Enterprise]
Returning now to the description of the enterprise valuation program with respect to Fig. 5, after determining a TIC2 value for the subject enterprise using the second valuation algorithm 550, then in a step 555 the enterprise valuation program computes a TIC subject Enterprise by performing a weighted average of TIC1 and TIC2. Preferably, TIC1 and TIC2 are weighted, such that: 15) TIC subject Enterprise = W e i ghtl*TI Cl + Weight2*TIC2, where Weight, + Weight2 = 1. 0 Finally, in a step 560, a fair market value for the subject enterprise, FMVSubject Enterpriser is computed using Equation 1 above, that is: 1) FMVSubject Enterprise = TICSubject Enterprise + Cash-Debt Accordingly, as described above with respect to the preferred embodiments, an automated on-line valuation process in a distributed computing environment, including the Internet, can simultaneously perform enterprise valuation exercises for many users located remotely throughout the world. Also, a user can perform an enterprise valuation exercise by interacting with the enterprise valuation program via a supplied interface, and without downloading any software onto his or her computer. Further, a user may store the valuation data and valuation results for a particular valuation exercise on a remote storage device associated with the distributed computing system, such as an Internet Web site. The automated on-line valuation process also includes security features to prevent unauthorized
access to a user's valuation data.
In the automated on-line valuation process, changing market assumptions may be automatically entered into the enterprise valuation process without requiring user entry. Preferably, market assumptions, such as discount interest rate, control premium, prime lending rate, etc. are automatically linked into an enterprise valuation program from external information sources, such as the Internet.
The automated on-line valuation process employs multiple valuation algorithms to produce a more reliable and robust enterprise valuation, including analyzing dynamic aspects of the subject enterprise, such as the subject enterprise's discounted cash flow.
Additionally, the comparable company database utilizes current public company financial information to enhance the accuracy and timeliness of the valuation.
While preferred embodiments are disclosed herein, many variations are possible which remain within the concept and scope of the invention. In one variation, the enterprise valuation program may employ more than two valuation algorithms for computing TIC. For example, both a comparable transaction algorithm, as well as an enterprise comparable algorithm, may be used in addition to the discounted cash flow algorithm. In another variation, the first and second valuation algorithms of the enterprise valuation program each compute a value for the subject enterprise by adding the enterprise's cash and subtracting the enterprise's debt from the TIC, and then the enterprise valuation program computes a weighted average of two values to produce a fair market value.
Such variations would become clear to one of ordinary skill in the art after inspection of the specification, drawings and claims herein. The invention therefore is not to be restricted except within the scope of the appended claims.
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