Question

What are the key elements of business valuations and how would you value Walmart?

Answer 1

Key elements of business valuation:

1. Cash flow method:

FInding the cost of capital or WACC involves finding target capital structure, beta

Forecasting the cash flows

Finding the terminal growth rate

FInding the investment to be required

2. Comparable transactions

Use the multiples from the deals happened in the market

3. Multiples

Use comparable firm multiples such as PE, EV/EBITDA etc.

Walmart can be valued by using free cash flow model by first forecasting sales, profit margins assuming some growth rate and then finding the investment to be required for its projects and then building the balance sheet. Then find the cost of capital and then value the firm.