1. Football Field Chart
Wrapping up our introductory section, here's what is known as a football
field chart. In this case, we are looking at a publicly traded company,
this type of chart is often created by valuation professionals when summarizing
the methods they've used to come up with a value for a business.
So as you can see across the bottom axis of this chart,
there are several different valuation methods used. Comparable company analysis,
which is comps, precedent transactions, DCF with two different cases, perpetuity
growth and terminal multiple, and the current trading price of the stock
over a year with its 52 week high and low. We've labeled the
two methods on the left as being the relative valuation techniques.
And the two DCF valuation cases represent the intrinsic value ranges for
this company. Now, the job of a valuation analyst or professional is to
step back and look at this, weigh the different methods, the comps,
the DCF, the upside of the downside, and triangulate on some type of
value that the analyst thinks makes the most sense.
Again, since value can never be truly observed, we use all of these
techniques. So it's not just about arriving at one number,
it's about arriving at a range of values,
and then the art of deciding where within that range of values you
believe the actual value of this business lies.
2. Let's practice!