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The DDM is more grounded because it’s based on the company’s actual distributions and potential future value. And it values the company today based on the present value of its dividends and that potential future value (either the stock price or the Equity Value via the TerminalValue calculation).
Well, the short answer is after that forecast period where we estimate each year’s cash flows then discount them, we add a single number at the end to account for all the theoretical years in the future, called the TerminalValue (TV). Explaining The TerminalValue. How do I calculate the TerminalValue?”
Debt Usage and TerminalValue In a standard leveraged buyout model , the Debt funding is usually based on a multiple of EBITDA or a percentage of the Purchase EnterpriseValue (i.e., the value of the target company’s core business operations in the deal).
Difference between EnterpriseValue and Equity Value? Definition: The distinction between EnterpriseValue (EV) and Equity Value lies in their focus—EV centers on the market value of operating assets, while Equity Value pertains to the market value of shareholders' equity.
Analysts use financial metrics and multiples such as Price to Earnings (P/E), Price to Book (P/B), EnterpriseValue to Sales (EV/Sales), EnterpriseValue to EBITDA (EV/EBITDA), and Price to Book (P/B) ratios derived from trading data of similar public companies or deal pricing data of similar M&A transactions.
Unlike in a normal DCF, there is no TerminalValue – instead, you go out many decades and assume the drug hits “peak sales,” and that revenue then declines to a low level as generics enter the market.
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