Intrinsic Value FAQ's

Know Your Worth

What is Know Your Worth ?

As a module in the app, Know Your Worth assists you in determining the Economic / Intrinsic Value of a Company. The module consists of two sub-sections: Early Stage and Growth & Mature Stage Companies. This module helps a user to conduct Valuation of any Company in any Country and in any Currency.

This section elucidates terms, methodology, and models used in the app, which will help to determine the Economic / Intrinsic Value of a Company. The app uses the Perpetuity with Real Constant NOPAT Model to determine Residual Value and the model assumes that the Companies are being valued as a Going Concern.

What are Economic Value, Intrinsic Value, Enterprise Value and Shareholder Value ?

The Economic or Intrinsic Value of Company is a Discounted Cash Flow (DCF) Valuation where the Cost of Capital discounts the Future Cash Flows in Perpetuity to arrive at the Present Value of Cash Flows. These Cash Flows consists of two parts:

• Cash Flows during the Forecast Period.
• Cash Flows Post Forecast Period (Residual Period).

The Value Augmentation of a Company is most pronounced during the Forecast Period. During the post Forecast Period – also referred to as Residual period – the assumption in the model is that the Company would not create any additional value since it would earn equivalent to its Cost of Capital. It is also assumed that the Company would be able to sustain its Net Operating Profit after Tax (NOPAT) in real terms post the Forecast Period.

The Cash Flows generated during these periods belong to Debt Holders and Shareholders. Thus the Economic or Intrinsic Value of the Company would thus be the sum of Equity and Debt Values, also referred to as the Enterprise Value of a business. The value of the Equity is referred to as Shareholder Value. Therefore:

1. Enterprise Value = Shareholder Value + Debt Value (includes all interest bearing obligations)
2. Shareholder Value = Enterprise Value – Debt (Further the Company’s Statement Of Affairs may also contain Non-Operating Balance Sheet elements such as Cash, Securities, Investments & Other Assets and Minority Interest & Other Liabilities that are not utilized for generating Operating Cash Flows which may need to be added or subtracted to arrive at Enterprise and Shareholder Value.)
3. Shareholder Value therefore is:
   • The Present Value (PV) of Cash Flows from Operations during the Forecast Period Plus
   • Present Value of Residual Value of the Company’s business, referable to the period beyond the Forecast Period Plus
   • Cash & Marketable Securities and Other Investments (The Income from these Investments should not be included in Cash Flows from Operations) Minus
   • Minority Interest and Other Liabilities Minus
   • Debt and Long Term Obligations.

What is Present Value of Cash Flow from Operations ?

Cash Flow from Operations is Operating Cash Inflows less Operating Cash Outflows. Cash Inflows is Operating Profit and Cash Outflows is Incremental Fixed Assets Investments, Incremental Net Working Capital (NWC) Investments and Income Tax.

The Cash Flow from Operations is estimated for each year in the Forecast Period, which is then discounted back to the present. The Cost of Capital or the Weighted Average of the Cost of Debt and Equity Capital (WACC) discounts the Cash Flows. In the App we use the WACC to discount the Cash Flows.

Table 1.1 demonstrates the computation of Present Value of Cash Flows for a Forecast Period of 5 years with a discount rate of 11%.

Table 1.1

Year	1	2	3	4	5
Cash Flow	1000	1500	2000	2500	3000
11 % Discount Factor	0.901	0.812	0.731	0.659	0.593
Present Value of Cash Flow	900.9	1217.4	1462.4	1646.8	1780.4
Cumulative PV of Cash Flow	900.9	2118.3	3580.7	5227.5	7007.9
Discount factor =	1 (1 + 0.11)n

The Cumulative Present Value of Cash Flows during the Forecast Period is 7007.9.

Cash Flow Drivers

What is Forecast Period ?

Prior to any Valuation, it is imperative to know the Number of years for which Valuation is to be based on. These years constitute the period for which the Company is expected to generate returns in excess of its Cost of Capital. This could be from a single year to 15 years and if companies have significant competitive advantage then these could be over 15 years and even go up to 30 years.

The model used in the App, assumes that post the Forecast Period, Incremental Investments would not create value and the Company will be able to sustain its NOPAT in real terms. The App permits the Forecast Period to be a maximum of 30 Years.

When using the App, enter the number of years for which the Valuation is to be based on. The maximum period of forecast in the app is limited to 30 years.

What is Sales in Prior Period ?

The starting point of estimating Cash Flows is Sales and the Growth Rate of Sales. The Sales is the Sales in the Prior Period and should exclude non-operating income.

What is Prior Period?

The Prior Period is ideally the 12-month trailing period for which the data is to be entered, for instance June 30, 2017. In case data is not easily available for 12 months the user may enter the data for immediately preceding fiscal year – for instance, March 31, 2017.

What is Sales Growth Rate ?

The user should estimate the Sales for the Forecast Period either in Values or Sales Growth Percentage to Prior Period Sales. This can be done by estimating Compounded Annual Growth Rate (CAGR) or by a yearly percentage of growth.

When using the App, the user may enter either CAGR or different growth rates for each individual year. In case of start-ups, if the Sales were zero in the previous and or subsequent years, the user must enter zero and not a percentage until the time there are sales.

What is Operating Profit Margin ?

Operating Profit Margin (OPM) is the Earnings before Interest and Income Tax (EBIT), and after deducting Depreciation.

To arrive at the Operating Profit, all expenses including Depreciation should be deducted. The Operating Profit Margin should not include Other Income.

To compute the Cash Flow the user must also deduct Depreciation from Operating Profit though a non-cash item - however other non-cash items such as amortization of intangibles should not be deducted.

Further the user also needs to remember to deduct the Depreciation from Capital Expenditure to arrive at the correct Cash Flow.

A significant portion of the Shareholder Value is in the Residual Value. The Target Year (Last Year of the Forecast Period) Operating Profit is the key driver in computing the Residual Value, thus the user needs to carefully ascertain the Operating Profit / Margin for the Target Year.

When using the App, the user must enter the Operating Profit / Margin percentage for the Prior Period either in Values or as Percentage to Sales. During the Forecast Period enter the Operating Profit / Margin either uniform for all the years or for each individual year. In the case of start-ups, if the Sales were zero in the previous and or subsequent years, the user must enter Operating Profit Values and not a percentage, until the time there are Sales.

What is Incremental Investment Rate ?

Incremental Investment Rate is Incremental Fixed Asset Rate plus Incremental Net Working Capital Investment Rate.

What is Incremental Fixed Assets Investment Rate ?

The Incremental Fixed Assets Investment represents the Net Investments in Fixed Assets and Intangibles (Net Block of Fixed Assets). The Fixed Asset Investments forms a part of Company’s operations to support Sales Growth. This Investment Rate can be expressed as a percentage of Incremental Sales.

The Incremental Fixed Assets Investment is defined as Capital Expenditures less Depreciation expense for the year.

Incremental Fixed Assets Investment = Capital Expenditures – Depreciation expense

And can be expressed as

Incremental Fixed Assets

Incremental Sales

What is Incremental Net Working Capital Investment Rate?

The Incremental Net Working Capital (NWC) Investment represents the Investments in Current Assets less Current Liabilities. The Incremental Net Working Capital Investments forms a part of Company's operations to support Sales. Short-term borrowings should be excluded from Current Liabilities and will form a part of Debt and Obligations.

This Investment can be expressed as a percentage of Incremental Sales Growth.

Incremental NWC Investment Rate	=	Incremental NWC Investments
		Incremental Sales

When using the App, the user must enter the Incremental NWC Investment either in Values or as Incremental NWC to Incremental Sales Rate. The user can enter the Incremental NWC Investment / Rate uniform for all the years or for each individual year. In the case of start-ups, if the Sales were zero in the previous and or subsequent years, the user must enter Incremental NWC Investment in Values and not a percentage, until the time there are Sales.

What is Income Tax Rate during Forecast Period ?

The Income Tax Rate represents taxes on the Operating Profit for a year, which a Company is likely to incur during the Forecast Period. There could be a difference in the Cash Income Tax Rate and the Income Tax Rate due to Company polices of recognizing some revenue and expense items at different times, for financial accounts and tax accounts.

When using the App, the user must ideally enter the Marginal Income Tax Rate, the Company is likely to incur during the Forecast Period and not the Cash Income Tax Rate, since any excess or less Tax paid, would be set off in the subsequent years.

What is Income Tax Rate during Residual Period ?

Income Tax Rate during the Residual Period is the rate companies expect to pay during the post-Forecast Period. This should be the Marginal Income Tax Rate.

When using the App, the user must enter the Residual Income Tax Rate expected during the Residual period.

How to compute Net Cash Flows ?

Example for computing Net Cash Flow of Joy Sweets

Assumptions

Forecast Period	5 Years
Sales in Prior Period	1000
Sales Growth, CAGR	15%
Operating Profit Margin	18%
Income Tax	33%
Incremental Fixed Assets Investment Rate	35%
Incremental Net Working Capital Investment Rate	30%

Computation of Net Cash Flow

Table 1.2

Year	0	1	2	3	4	5
Sales	1000	1,150	1,323	1,521	1,749	2,011
Operating Profit		207	238	274	315	362
Income Tax		68	79	90	104	119
Incremental Fixed Assets		53	60	69	80	92
Incremental Net Working Capital		45	52	60	68	79
Net Cash Flow		41	47	54	63	72

We have now computed the Cash Flows from operations for Joy Sweets based on various parameters or value drivers.

We also need to arrive at a Present Value of these Cash Flows for which we require a Cost of Capital to discount the Cash Flows. The Cost of Capital is explained in the Capital Structure section.

Balance Sheet Items

Which Balance Sheet items are required to be included to value a company ?

The Company may have Non-Operating Assets not utilisied for generating Operating Cash Flows.

We therefore require Balance sheet items, which will consist of

• Non-Operating Assets not utilized to generate Operating Cash Flows and
• Liabilities such as Debt, Minority Interest and Other Liabilities

To be added or subtracted to arrive at the Shareholder Value.

What is Non-Operating Assets ?

Non-Operating assets are those Assets that are not required for generating Operating Cash Flows. These could be Cash & Securities, Investments, Other Assets etc

What is Cash & Securities ?

This is the Cash and Securities at Market Value including short-term Investment as on the Prior Period ending for the Company.

When using the App the user must enter the Cash and Securities for the Prior Period.

What is Investments ?

This is the Investments in the books as on the Prior Period. This would be the estimated Market Value of Investment in Subsidiaries or Joint Venture or Other Partnerships for which the financial information would not be consolidated and no part of it should form a part of the Profit and Loss Account.

When using the App, the user must enter the Investments at Market Value if any as on the Prior Period ended.

What is Other Assets ?

The items in Other Assets could include Deferred Tax Assets and other Non-Operating Assets and expected Contingent Assets. The Income from these Assets should not be considered as Revenue / Sales.

What is Minority Interest ?

This is the Market Value of Minority Interest. This should be entered if the Company is being valued on consolidated basis for these Investments and there is a Minority Interest.

When using the App, the user must enter the Minority Interest if any as on the Prior Period ended.

What is Other Liabilities ?

This should include Deferred Tax Liabilities, Non-Interest Bearing Obligations, Under Funded Pensions and Health Care Obligations and Expected Contingent Liabilities as on Prior Period Ended.

What is Debt & Obligations ?

This is the Value of Debt and Interest Bearing Obligations as on Prior Period Ended. The Debt portion should include Short Term Borrowings.

What is Carry Forward Losses ?

These are Losses in the books as on the Prior Period ended. The model assumes that the losses will be set off against any future profits until the Target Year. The Target Year is the last year of the Forecast Period.

When using the App, the user must enter the Carry Forward Losses figure. This will offset the Income Tax payable in future years until the last year of the Forecast Period.

The App ignores any Carry Forward Loss post Forecast Period.

What is Outstanding Shares ?

Outstanding shares is the Company’s Stock / Shares currently held by all its Shareholders. This should include Equity Options, Convertible Shares and Warrant Options.

When using the App, the user must enter the number of outstanding shares as on the Prior Period ended.

Capital Structure

What is Market Capitalization or Estimated Valuation ?

Market Capitalization is the Market Value of a Company’s outstanding shares. This is calculated by multiplying a Company’s outstanding shares by the current market price of a share.

When using the App, the user must enter the Market Capitalization or in case of early stage companies the estimated latest Valuation of the Company - usually the Valuation as on the last round of funding. Entering this figure is necessary since the Debt Equity Ratio is computed based on the Market Value of the Company’s Equity.

What is Debt Equity Ratio ?

We compute the Debt Equity Ratio based on Market Values since Investors demand returns on Market Valuation and not Book Value.

The user can either use the Debt Equity Ratio as computed based on Market Capitalization or Change the Debt Equity Ratio if the user expects the Long Term Debt Equity Ratio to be different from the Ratio computed based on the Market Capitalization. The app will then use the revised Debt Equity Ratio to compute WACC, while ignoring computation based on Market Capitalization.

When using the App, the user must enter the Debt Equity Ratio only if the user expects it to change during the Forecast Period or has not entered the Market Capitalization.

What are Cost of Capital and WACC ?

We need to arrive at a Present Value of Operating Cash Flows for which we require a Cost of Capital to discount the Cash Flows.

We use the Weighted Average Cost of Capital (WACC) to compute the Cost Of Capital and discount the Cash Flows by the WACC. WACC is the weighted average Cost of Debt and Equity Capital. For example, if a Company’s pre-tax Cost of Debt is 10%, estimated Cost of Equity 15%, Income Tax Rate is 30%, and it finances its business growth by Debt 40% and Equity 60%, then the Weighted Average Cost of Capital would be computed as follows:

Table 1.3

	Weight	Cost	Weighted Cost
	%	%	%
Debt (After Tax)	40	7	2.8
Equity	60	15	9.0
Cost of Capital			11.8

Note:

1. Post tax Cost of Debt equals Cost of Debt (1 - Tax Rate) = 10% * (1 - 30%) = 7%
2. Cost of Capital is also called Weighted Average Cost of Capital (WACC)

What is Cost of Debt ?

Cost of Debt is the expected Cost of Long Term Debt. The Intrinsic Value involves forecasting Future Cash Flows and discounting it by future discount rates. The model assumes the Cost of Debt to remain uniform during the forecast period. The Cost of Debt should be the Cost of Debt of the Currency in which the Company is being Valued.

The Cost of Debt is Pre-tax and in Nominal terms is measured as follows:

Real Interest Rate + Expected Inflation Rate + Default Spread.

Hence, if the Cost of Debt would be 9.75% and Income Tax Rate at 33% then the after tax Cost of Debt will be 9.75% (1 - 33%) = 6.53%.

In the App, the user must enter the Pre-tax Cost of Debt in nominal terms.

What is Real Interest Rate ?

The Real Interest Rate is the rate of interest an investor or lender receives (or expects to receive) after factoring inflation. It can be described more formally by the Fisher equation, which states that the real interest rate is approximately the Nominal Interest Rate minus the Inflation Rate.

What is Risk Free Rate ?

A Risk Free Rate is a rate of return on Investment with no risk or financial loss. This is a Bond Treasury Rate issued by the government. Risk Free Rate varies from country to country and from currency to currency.

Risk Free Rate = Real Interest Rate + Expected Inflation.

Please note that Risk Free Rates vary across varying time horizons and should be consistent with Forecast Period while doing Valuation.

What is Default Spread ?

Default Spread is the difference between the Cost of Debt to the borrower and the Risk Free Rate.

What is Expected Inflation ?

Expected Inflation is the Expected Inflation Rate of the Currency during the forecast period. It is normally built in to the Risk Free Rate.

To elucidate: For a country in 2016, the Real Interest Rate is 2% and the Expected Inflation is 5.25%. If a Company’s default spread is 2.5% then the Pre-tax Cost of Debt is 9.75%. It is necessary to understand that the Risk Free Rate is Real Interest Rate + Expected Inflation Rate which is 2% + 5.25% = 7.25%

When using the App, the user must enter the Pre-tax Cost of Debt in nominal terms.

What is Cost of Equity ?

Cost of Equity is an expected rate of return required by the investors to invest in the Company’s shares. The Equity Investors generally require a risk-free rate plus an additional return called Equity Risk Premium (ERP) for investing in a Company’s shares to compensate for the risk undertaken by the investors.

The model that explains the relationship between the systematic risk and the expected return on Assets, particularly stocks, is referred to as The Capital Asset Pricing Model (CAPM). This model is used extensively to evaluate risky securities, expected returns on Assets based on the risk level of the Assets, and for calculating the Costs of Capital.

The formula for calculating the expected return of an asset given its risk is as follows:

Simply,

Cost of Equity = Risk Free Rate + Equity Risk Premium, where

Risk-free Rate = Real Interest Rate + Expected Inflation Rate

Equity Risk Premium = Beta (Expected Return on Market - Risk Free Rate)

The Expected Return on Market represents the additional return expected by investors to invest in the Equity market versus risk-free government bonds.

The Beta coefficient is the measure of volatility or systematic risk of the stock in comparison to the market as a whole. The individual stocks tend to be riskier or less risky than the market and the Beta measures this risk. Beta is easily obtainable from various financial online sites.

The expected Return on Equity varies across investor types. For example, venture capitalists would demand higher returns than a stock market investor. Returns also depend on lifecycle stage of a Company.

In case the user finds computing Beta and Cost of Equity under the Capital Asset Pricing Model (CAPM) cumbersome, then the user may use a hurdle rate as Cost of Equity or Stock Market Expected Returns on Equity, or any other reference as the Cost of Equity.

When using the App, the user must enter the Cost of Equity for the Forecast Period. This may be uniform for all the years or the user can opt to enter the Cost of Equity individually for each year.

What is Expected Market Returns and Expected Return Over Inflation ?

The Expected Market Return is the return expected by the Investors for an Investment made in companies represented in the Index. The Expected Market Return is an important concept in risk management, because it is used to determine the market risk premium. The Market Risk Premium, in turn, is part of the Capital Asset Pricing Model, (CAPM) formula.

The returns on individual stocks may be considerably higher or lower depending on their volatility relative to the market represented by Beta of the Stock.

One way to compute Expected Market Return is to add the Expected Inflation Rate and the Real Returns (Returns Over Inflation in the Stock Market).

The Real Return (Market Return plus Dividend Yield Less Inflation) for the S&P 500 as analysed for a period of 100 years (1918 – 2017) and the Geometric Average is about 7.13% over Inflation.

It is possible to compute the Expected Market Returns by adding the Expected Return Over Inflation (Real Return) to Inflation. Hence, if the inflation rate is 2%, the Expected Market Return will be about 9.13% (2%+7.13%).

How to compute WACC / Cost of Capital ?

Example of Joy Sweets for Computing WACC / Cost of Capital

Market Cap	3000
Debt	1000
Cost of Debt	10%
Income Tax	33%
Cost of Equity	15%

Table 1.4

Computation of WACC (Cost of Capital) Post Tax Cost of Debt = Debt Cost x (1 - t) = 10% (1 - 33%)
		Weight	Post tax cost	Weight Cost
Debt	1000	25%	6.70%	1.68%
Equity	3000	75%	15%	11.25%
Cost of Capital /WACC	4000	100%		12.93%

Present Value of Cash Flows

In the following table, we discount the Cash Flows of Joy Sweets with Cost of Capital (WACC) computed above.

Table 1.5

Net Cash Flow		41	47	54	63	72
Discount Factor	1	0.886	0.784	0.694	0.615	0.545
PV of Cash Flows		36	37	38	39	39
Cumulative PV of Cash Flows		36	74	111	150	189

What is Residual Value or Terminal Value ?

As mentioned earlier in this section the Free Cash Flows over the Forecast Period represent the first part of a Company’s value. The model values Companies as a going concern thus a Company continues to have value post the Forecast Period – the Cash Flows continue to remain.This part of the Cash Flow (Post Forecast Period) is called Residual Value or Terminal Value.

Residual Value is the value of a Company post the Forecast Period and it is assumed the owners will earn only the minimum required rate of return. Residual Value often constitutes most of a Company’s total value.

What is Residual / Terminal Value under Perpetuity with Real Constant NOPAT Model ?

We have used the Perpetuity with Real Constant NOPAT Model to compute Residual Value. This model assumes that any future Investments, beyond the Forecast Period, would not create value and a Company would be able to sustain its Net Operating Profit after Tax (NOPAT) in real terms post the Forecast Period.

This is because in order to survive, companies would need to cope with long-term inflationary pressures.

The Perpetuity with Real Constant NOPAT Model in other words assumes that the NOPAT will cope up with the inflation and thus grow in perpetuity at the Inflation Rate, in the post-Forecast Period or will remain constant in real terms. The formula for the Present Value of Residual Value is that of a growing perpetuity as follows:

Residual Value	=	NOPAT x (1 + Inflation Rate)
		WACC in Real Terms

1. NOPAT in Target Year. Thus estimating the Target Year Operating Profit thus forms a crucial parameter in arriving at a Valuation

Present Value of Residual Value = Residual Value x Discount Factor at end of Forecast Period.

What is Cost of Debt in Real Terms ?

Cost of Debt in Real Terms = Cost of Debt – Expected Inflation Rate

The App automatically computes Cost of Debt in real terms by deducting expected inflation. There is no entry point in the App for Cost of Debt in real terms.

What is Cost of Equity in Real Terms ?

Cost of Equity in Real Terms = Cost of Equity – Expected Inflation Rate.

The App automatically computes Cost of Equity in real terms by deducting expected inflation. There is no entry point in the App for Cost of Equity in real terms.

What is Cost of Equity during Residual Period ?

This is the Cost of Equity expected during the Residual Period. This should be closer to Market Returns since it is expected that companies would become Mature Companies during the Residual Period.

The app automatically computes Cost of Equity in Real Terms by deducting the Inflation Rate.

When using the App, the user must enter The Cost of Equity during Residual Period in nominal terms.

What is WACC in Real Terms ?

In the Perpetuity Real Constant NOPAT Model, it would be required to divide the NOPAT by WACC in real terms. The computation of WACC in Real Terms is shown in the example below:

Example of Computation of WACC Real in computing Residual Value for Joy Sweets:

Computation of WACC (Cost of Capital)
Debt	1000
Equity	3000
Cost of Debt	10%
Cost of Equity	15%
Tax Rate	33%
Inflation Rate	5%
Risk Free Rate	7%

Table 1.6

Computation Of WACC In Residual Value - Real
Cost of Debt in Real Terms = 10% - 5% = 5%
Cost of Equity in Real Terms = 15% - 5% = 10%
Post tax Cost of Debt= 5% * (1 - 33%) = 3.35%
		Weight	Weighted Cost
Debt	1000	0.25	0.84%
Equity	3000	0.75	7.50%
	4000	1
		WACC in Real Term	8.34%

How to compute the Present Value of Residual Value ?

Table 1.7

Computation of Present Value of Residual Value Of Joy Sweets

Operating Profit in Year 5		362
Income Tax Rate in Residual Value		33%
Cost of Equity		15%
Cost of Debt		10%
Debt : Equity Ratio	Debt	25%
	Equity	75%
Inflation		5%
5th Year Discount Factor		0.545
Residual Value:	NOPAT (1 + Inflation) x Disc. WACC In Real 242.5 * (1.05) * 0.545 8.34% = 1664

How to compute Valuation ?

Thus the Valuation of Joy Sweets is computed as follows:

Table 1.8

Valuation and Joy Sweets
	0	1	2	3	4	5
Sales	1000	1150	1323	1521	1749	2011
Operating Profit		207	238	274	315	362
Income Tax		68	79	90	104	119
Incremental Fixed Assets		53	60	69	80	92
Incremental Net Working Capital		45	52	60	68	79
Net Cash Flow		41	47	54	63	72
Discount Factor	1	0.886	0.784	0.694	0.615	0.545
PV of Cash Flows		36	37	38	39	39
Cumulative PV of Cash Flows		36	74	111	150	189

Cumulative Present Value of Cash Flow	189
Present Value of Residual Value	1664
Cash, Securities and Investments	750
Minority Interest	300
Enterprise Value	2303
Debt	(1000)
Shareholder Value	1303
No of Shares	150
Price per share	8.69

When using the App, the user must enter the requested data and information in the Know Your Worth module to get:

• Valuation Report
• Shareholder Value Augmented Report (Explained in the Value Augmentation Section)

Summary Illustration - Valuation

Now that the estimation procedures for the calculation components of Shareholder Value-Cash Flow from operations, Cost of Capital, and Residual Value, have been explained, let us look at an illustration that incorporates all of the components. Consider a business Snap Value with the following five-year forecast:

Assumption for Snap Value
Forecast Period		5 years
Expected Inflation Rate	%	5%
Sales in Prior Period	In Mn	150
CAGR of Sales (all 5 Years)	%	11%
Operating Profit Margin Prior Period
Operating Profit Margin (all 5 years)	%	10%
Incremental Fixed Assets Investment	%	24%
Incremental Net Working Capital Investment	%	20%
Income Tax rate in Forecast Period	%	35%
Income Tax Rate in Residual Period	%	35%
Cash Securities	In Mn	30
Investment and Other Assets	In Mn	0
Minority Interest and Other Liabilities	In Mn	10
Debt & Obligations	In Mn	50
Carry Forward Losses	In Mn	0
Outstanding Shares	In Mn	30
Market Capitalization	In Mn	70
Cost of Debt	%	10%
Cost of Equity in Forecast Period	%	16%
Cost of Equity in Residual Period	%	16%

Table 1.9

Valuation of Snap Value
		1	2	3	4	5
Sales	150	166.50	184.82	205.14	227.71	252.76
Operating Profit		16.65	18.48	20.51	22.77	25.28
Income Tax		5.83	6.47	7.18	7.97	8.85
Incremental Fixed Assets		3.96	4.40	4.88	5.42	6.01
Incremental Net Working Capital		3.30	3.66	4.07	4.51	5.01
Net Cash Flow		3.56	3.95	4.39	4.87	5.41
Discount Factor	1	0.89	0.80	0.71	0.63	0.57
Present Value Of Free Cash Flow		3.18	3.15	3.12	3.09	3.06
Cumulative Present Value of Cash Flows	15.61
Residual Value	222
Present Value of Residual Value	126
Cumulative PV + Residual Value	141
Cash Securities & Investments	30
Minority Interest	10
Enterprise Value	161
Less: - Debt & Obligations	50
Shareholder Value	111
No of Shares	30
Price per share	3.7
Shareholder Value Augmented	9.6

	1	2	3	4	5
Future Value Per Share	4.3	5	5.8	6.7	7.8
Shareholder Value Augmented	2.0	1.9	1.9	1.9	1.9

What is Shareholder Value Augmented (SVAg) ?

SVAg is the difference in Shareholder Value between two time periods. Total SVAg denotes the Shareholder Value Augmented during the Forecast Period. For more details please refer to FAQs on Value Augmentation.

What is Future Value Per Share ?

Future Value Per Share is derived by the process of compounding the Present Value Per Share by the Cost of Equity used to discount the Cash flows for that year.