Using ScratchPad Valuation Calculator

ScratchPad Valuation Calculator, using key valuation drivers, calculates rough estimates of shareholder value. After you complete a ScratchPad valuation, which assumes constant value drivers in forecast periods, you create a more complex model by entering a full set of financial statement accounts and valuation assumptions to examine these drivers in greater detail and evaluate changes over time.

  To use ScratchPad Valuation Calculator:

  1. Select Analysis, then Tools/Calculators, and then ScratchPad Valuation.

  2. In Number of Forecast Periods, enter the number of years representing the discrete cash flow forecast or “value growth duration”.

  3. In Sales (Last Historical Period), enter gross revenues less sales adjustments (discounts taken, returns) for the last historical period.

  4. In Sale Growth Rate (%), enter your estimate of the anticipated rate of sales growth.

  5. In Operating Profit margin (%), enter the Operating Profit Margin.

    Enter the Operating Profit Margin, which is a pre-tax, pre-interest measure:

    Operating Profit less Amortization of Goodwill and Intangibles

  6. In Incremental Fixed Capital Invest. (%), enter your estimate.

  7. In Incremental Working Capital Invest. (%) enter your estimate.

  8. In Tax Rate on Operating Profit (%), enter the estimated amount of cash taxes paid on Operating Profit.

    The Tax Rate on Operating Profit is calculated as:

    Tax Rate on Operating Profit = Tax on Operating Profit / Taxable Operating Profit * 100

  9. In Residual Value Income Tax Rate (%), enter a value.

    This is the income tax rate applied during the years after the forecast period. In many cases, is reasonable to use a rate equal to the Marginal Tax Rate.

  10. In Cost of Capital (K) (%), enter the Cost of Capital or discount rate, which is the weighted average costs of debt and equity.

    You can calculate this figure using the Cost of Capital Calculator—see Using the Cost of Capital Calculator.

  11. In Marketable Securities and Investments, enter current market values of non-operating investments.

    Include stocks, bonds, and overfunded pension plans.

  12. In Mkt. Value of Debt and Other, enter a value.

    Add to this the values of long-term obligations like preferred stock, minority interest, and contingent liabilities.

  13. In Number of Common Shares, enter the number of shares outstanding for the company.

    For private companies or divisions, enter zero.

  14. Calculate Results displays calculate values of:

    • Cum. PV of Cash Flows

      The Cum. PV (Present Value) of Cash Flows represents the cumulative value of all future periods' cash flow expressed in today’s dollars. It is calculated by multiplying the Discount Factor by the dollar value of the future cash flow.

    • + (plus) PV of Residual Value

      The Present Value of Residual Value is the portion of total corporate value attributable to the company’s operations beyond the final year of the forecast period, expressed in today’s currency.

    • + (plus) Market Securities

      The value entered under Input Parameters.

    • = (equals) Corporate Value

      The total economic value of the company equals:

      • The present value of all forecasted cash flow from operations during the forecast period.

      • The present value of the “Residual Value”—the value of the company’s operations beyond the forecast period.

      • Investments”—Marketable Securities and long-term Investments in Bonds and Stocks.

    • - (minus) Market Value of Debt

      The value entered in the Input Parameters section.

    • = (equals) Shareholder Value

      The Shareholder Value of the company is the Corporate Value less the Market Value of Debt.

    • Shareholder Value /Share

      Shareholder Value divided by the Number of Common Shares.