Lecture 13_Valuing a biotech company Flashcards
(16 cards)
Market capitalisation method
Calculates a company’s value by multiplying the share price by the number of outstanding shares.
Market capitalisation method disadvantage
valuation of the company is at the mercy of the shareholders
What is the multiples method of valuation?
A relative valuation approach that estimates a company’s value by comparing it to similar companies using financial ratios (multiples) like EV/EBITDA, P/E, or EV/Revenue.
Who can use multiples method
pre-revenue startup companies
Who is Comparable company analysis suitable for
private, but profitable companies
DCF methods
calculate the present value based on expected future cash flows
What is NPV
Net Present Value estimates the sum of all future cash inflows and outflows
discounted back to their present value in today’s money (accounting for inflation)
How to read NPV
If NPV is a positive number, then the investment is worthwhile
If NPV is negative, then investment not worthwhile
Disadvantages of DCF
useful only when cash flows are predictable
Who is DCF suitable for
later stage companies with a history of financials
VC method
Focuses on the return an investor expects to receive upon exit
Scorecard methods
Scorecard methods are quantitative and qualitative evaluations based on certain
critieria
Types of financial statements
- Profit and loss statement
- Cash flow statement
- Balance sheet
What is the difference between a cash flow statement and a profit and loss (P&L) statement?
P&L = shows profit on paper (even if unpaid)
Cash Flow = shows real cash in hand
Balance sheet
A financial statement that shows a company’s assets, liabilities, and equity at a specific point in time.
Changes in equity from issuing shares are
shown (not seen on P&L report)
equity
Equity = Total Assets – Total Liabilities
