The primary earnings valuation outputs are:

• Estimation of Capitalisation and Discount rates;
• Estimation of Future Maintainable Earnings (FME);
• Valuations based on Capitalisation of FME by reference to EBITA and EBITDA;

ValModel calculates:

• The Cost of Capital using the Modified CAPM approach developed in the Discount Build and adjusting for “Growth to Perpetuity” [Growth is the all important Link between the Capitalisation and DCF approaches];
• The Weighted Average Cost of Capital (WACC) both pre-tax and post-tax and the pre-growth post-tax WACC used in the DCF module to discount FCF’s to both debt and equity;
• Reconciled Enterprise and Equity valuations by reference to NPAT (*PER), EBITA and EBITDA (*WACC);and
• Provides a Sensitivity Analysis based on a range of WACC (EBITA Multiples).

ValModel provides:

• An Estimation of Future Maintainable Income (EBITA and EBITDA), adjusted for the effects of inflation. This is auto generated but requires some data entry to enable normalisation of:
  – Abnormal and non-recurring expenses (identified from expense input);
  – Market salaries to working directors/shareholders;
  – Market rent to related parties; and
  – Other necessary expense adjustments.
• Various options to assist the valuer estimate Future Maintainable Earnings (FME), namely:
  – Average EBITA for 3, 4 and 5 years (assuming data is present);
  – Weighted average of the last 3 years;
  – EBITA based on a trend analysis of normalised historical results;
  – EBITA based on a Trend Line Static statistical calculation;
  – Current year/Forecast year.
  – [ValModel defaults to “weighted averaged” ]

ValModel provides an earnings based valuation range and integrity checks this as follows:

• An Enterprise Value range based on EBITA and EBITDA and associated multiples [the implied EBITDA multiple is estimated by reference to historical levels of depreciation];
• An Equity Value range by adding Surplus assets and deducting Debt; and
• As a test of reasonableness, the value of Goodwill implied in the valuation is calculated and tested by reference to both EBITA and NPAT (number of times covered). This is also sometimes referred to as the excess earnings method, although in its pure form, an allowance should be made for a return on capital invested.