Below is given hypothetical situation.
Assume company ABC is having having FY15 profit of 100Cr, and the average P/E of industry in which business operates is 10 and current market cap is 1000Cr.
Given that you know and the company will have 10Cr profit in FY16, 200Cr in FY17, 10Cr in FY18 and 200Cr in FY19 and after that profit will be somewhere in range of 40-60 Cr for next 10 years which cannot be predicted exactly now but will be range bound.
How do someone value such business or on what earnings should multiple be applied? Most of the times market assign a value based on forward year earnings.
Now because each year earnings are so fluctuating what should be the base earnings which should be considered Current year? Next year? Average of 4 to 5 years?
Views please.
If this case study doesn’t makes sense please flag the post so that it gets deleted.
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