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Showing posts from December, 2020

Apple Multiples Valuation

Unlike a traditional DCF model, doing a multiples analysis with comparable companies is a lot easier and quicker to do. The four companies I used to compare with Apple are: Microsoft, Amazon, Netflix, and Google. I used Microsoft because Apple and Microsoft are competitors in the field of hardware, mainly computers. Amazon and Apple are comparable because they're both tech giants in their respective fields and even have services in common such as Amazon Prime/Apple TV and Siri/Echo. Similarly, Netflix and Apple compete with each other in regards to their streaming services. Google and Apple both produce hardware like  home-pods, phones and computers, despite Apple being considerably larger.  The multiples that I used for the valuation are: EV/Sales, EV/EBITDA, EV/EBIT, and P/E. EV is the Enterprise Value of a company, which can be calculated by subtracting cash and cash equivalents and adding total debt to the Market cap. EV is the true value of a company while taking into account

Apple 3-Statement

It's been a long time since I lasted posted, but I have to say that it feels good to be back.  This time around I've decided to do a 3-Statement for Apple, that will later feed into a DCF.

Apple DCF

  The most difficult part of this valuation was calculating the WACC. WACC equals Cost of debt * Weight of debt ( debt / debt + equity) * (1- effective tax rate) + Cost of equity* Weight of equity. Cost of debt is defined as the interest expenses of that year divided by total debt of that year.


Before doing anything, I worked on calculating the WACC for P&G. I got all the relevant values from P&G's Yahoo finance page and P&G's 2020 10-K. For the cost of debt, I divided 2020 interest expenses ($465,000) by 2020 total debt ($30,092,000). For the weight of debt, I divided the total debt by total debt and market capitalization ($345,583,000). I found the effective tax rate for 2020 in the 10-K, which was 17.2%. I subtracted that value from 1 to get the tax deductible. I multiplied all of these values together to get the total debt portion of capital. For the cost of equity, I used the Capital Asset Pricing Model (CAPM) formula. The risk-free rate is 0.9340%, P&G's beta is 0.4, the S&P's long term average return is 9.24%. I used these values to calculate the cost of equity. The weight of equity is just the market cap divided by market cap and total debt. I multiplied the cost and weight to get the total equity portion of capital. Adding the deb