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1 Business Valuation: How to Make the Most of Your Business Pooja Gardemal, CPA/ABV Vice President Business Valuation & Economic Analysis 1

2 About is a global consulting firm with offices in the U.S. and Asia, providing a broad spectrum of services to airlines, governments, and investors since Industry Expertise Integrated Teams Credentials Legal Background Government Airline Operations Aircraft Maintenance Consulting Services Include Valuations Market Analysis & Evaluation Cost Benefit Analysis Due Diligence Asset Management Technical / Audit Services Financing Support Alternatives Aerospace Engineers MBAs Pilots CPAs ISTAT Certified Appraisers ABV / CVA Certified Valuators IATA Audit / Training Org. SMS Licensed Training Org. 2

3 services include Valuation Solutions Modeling & Analysis Asset Management Technical Support Training Expert Witness 3

4 Ms. Pooja Gardemal, Vice President BUSINESS VALUATION & ECONOMIC ANALYSIS 4

5 Intangible Asset Valuations Business Valuations Market Study & Trend Analysis Route Analysis Fleet Planning Due Diligence Cash Flow Modeling 5

6 How to Make the Most of Your Business BUSINESS VALUATION 6

7 Agenda Reasons to Obtain a Business Valuation Purpose of Engagement Raising Capital Sale Options Market Options Avenues for Sale Industry Trends Airline Industry Overview Aviation-Related Company Ratios & Multiples How Value is Derived Valuation Approaches: Income, Market, Asset Asset Approach Methodologies: Net Assets Market Approach Methodologies: Comparable Transactions, GPC Income Approach Methodologies: DCF, Capitalization of Earnings Valuation Methodology Valuation Exercises 7

8 Today s challenging global environment has raised the significance of valuations that aid in financial reporting requirements, tax planning, litigation, and mergers and acquisitions. REASONS TO OBTAIN A BUSINESS VALUATION 8

9 Purpose of Engagement Litigation Financial & Tax Reporting Compliance Planning Transactions Divorce Bankruptcy Intellectual Property (IP) Shareholder, Owner, Employee Disputes Corporate Reorganization S Corporation Conversions Income Tax Estate Tax Gift Tax Income Tax Estate Tax Gift Tax Mergers & Acquisitions Personal Financial Planning Mergers Acquisitions Buyout Initial Public Offering (IPO) Employee Stock Ownership Plans (ESOP) 9

10 RAISING CAPITAL 10

11 Options DEBT Private Banks Capital Markets EQUITY Minority Interest Sale Joint Venture Earn-Out Merger IPO 100% Sale 11

12 Avenues for Sale Private Equity Competitor Complimentary Business Consulting Firm Hedge Fund Bank 12

13 What to Expect Requirements 13

14 INDUSTRY TRENDS 14

15 Industry Volatility $30 10% 8% US$ Billions $20 $10 $0 $10 $ % 4% 2% 0% 2% 4% 6% Percent Growth, Passengers & Crude 8% $30 Airline Industry Net Profit Scheduled Passenger Growth World GDP Growth 10% Sources: IATA & World Bank Data 15

16 Profitability & Efficiency Ratios 60.0% 53.9% 50.0% 40.0% 30.0% 20.0% 17.9% 16.7% 18.4% 10.0% 4.7% 6.2% 4.1% 8.4% 6.0% 6.1% 7.9% 11.9% 0.0% Return on Asset Return on Equity Profit Margin Operating Margin Manufacturer Airline Leasing Company Sources: Yahoo Finance, Google Finance 12/31/2014 Financials 16

17 Leverage & Liquidity Ratios Debt /Equity Current Ratio 0.0 Sources: Yahoo Finance, Google Finance 12/31/2014 Financials 17

18 Valuation Multiples Price/Book Price/Sales EV/EBITDA EV/Revenue Manufacturer Airline Leasing Company Sources: Yahoo Finance, Google Finance 12/31/2014 Financials 18

19 HOW VALUE IS DERIVED 19

20 Standard of Value Type or definition of value. Premise of Value Circumstances under which the business will be analyzed. 20

21 Valuation Approaches Income airline oem Market lessor Asset 21

22 Asset Approach Method Typically Utilized: Net Assets Adjust Assets and Liabilities to FMV Liquidation Costs (if applicable) Apply Discounts Provides Floor for Value 22

23 Market Approach Comparable Transactions vs. Guideline Public Company 23

24 Market Approach: Comparable Transactions Arm s - Length Sales Sale of Entire Enterprises Qualitative and Quantitative Measures are Used for Comparability Dates of Transaction and Relevance of Market are KEY 24

25 Market Approach: Guideline Public Company Publicly Traded Company Multiples Benchmarking for Balance Sheet and Income Statement Items Typically Provides a Minority Interest 25

26 Income Approach Discounted Cash Flow v. Capitalization of Earnings Equity Value v. Enterprise Value 26

27 Income Approach: Capitalization of Earnings Expected Benefits are Capitalized into Perpetuity Using a Capitalization Rate Cap Rate = Discount Rate Long-Term Growth Rate 27

28 Income Approach: Discounted Cash Flow Future Benefit Streams are Forecasted for Typical Business Cycle or Expected Period of Volatility and then Discounted Back to Today Used When Historic Earnings and/or Market Conditions are not Indicative of Future Earning Capabilities 28

29 VALUATION METHODOLOGY 29

30 Where to Begin? 1. Financial Statements: Income Statement, Balance Sheet, Cash Flows for Past 5 Years 2. Tax Information 3. Corporate Structure and Key Persons 4. Competitors and Customers 5. Internal Forecasts, Projections, and Strategy 6. Industry Projections 7. Industry Ratios 8. Site Visit 30

31 Then What? 1. Review Financial Statements Through Common Sizing and Year Over Year Growth 2. Perform Ratio Analysis to Establish How the Company Operates Within its Own Industry 3. Forecast Revenues & Expenses, Depreciation & Amortization, Capital Expenditures 4. Determine a Discount Rate 31

32 Analyze & Employ Judgement Reasonability of Internal Projections Fuel Prices Sales Economic Forecasts Political Climate Inflation Inventory Changes Taxes Exogenous Events 32

33 Forecast Cash Flows 33

34 Forecast Cash Flows Revenues Less: Expenses Operating Earnings Less: Taxes After Tax Income Add back: Depreciation Less: Capital Expenditures Adjust for: Changes in Net Working Capital Net Cash Flow 34

35 Assess Specific Company Risk Key Person Risk Reliance on Related Parties Depth of Management Competitive Position Quality of Earnings Financial Strength Financial Leverage Diversification of Products Diversification of Customers Diversification of Suppliers / Subcontractors Company Reputation 35

36 Apply Valuation Discounts Lack of Marketability Lack of Control 36

37 Recap If You Are in Need of Cash, There Are Many Avenues to Obtain it Be Reasonable in Your Expectations Understand How a Business Valuation is Derived 1. Income Approach 2. Market Approach 3. Asset Approach 37

38 Thank You 38

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