SERVICES
> Financial Analysis and Valuation Services:
Financial Analysis
By uniquely applying our business, industry and market knowledge,
CENAK prepares sophisticated valuation models that serve as
financial analysis and management tools. Our independent expert
analysis gives our clients a deep understanding of their underlying
business model. Further, our analysis enables businesses assess
the viability of new business opportunities, including the
impact on a company's balance sheet, need for third party
financing, and consequences of best and worst case scenarios
on a company's financial performance. As such, our financial
models are a management tool that have helped managers, boards
of directors and business owners make better educated business
decisions that have a positive financial impact on the company
and ultimately its value.
Valuation Models
We at CENAK use a basket of valuation methodologies that provides
our clients with far more than just a single valuation number.
The development of a detailed discounted cash flow analysis
(DCF) serves as the foundation of our analytical services
as it can be applied in virtually every business situation.
Depending on the transaction and our client requirements,
the DCF is supplemented with other valuation methodologies
such as comparable company multiple analysis or comparable
acquisition analysis. This multi-dimensional approach to valuation
allows us to compare the results of various methodologies
and to test and validate assumptions made in the DCF analysis.
The sophisticated models developed by CENAK further serve
as powerful planning tools that allow management to test alternative
strategies and assumptions in "what-if" scenarios. Accordingly,
financial implications can be analyzed in great detail prior
to making important business decisions. Our objective is to
provide sophisticated analytical support designed to give
our clients the tools to evaluate a multitude of business
options and situations both prior and subsequent to the completion
of acquisitions, business combinations, debt and equity financings,
and other major business transactions.
Management Tools
To our way of thinking, valuation work is as much of an art
as it is a science. Consequently, it has been our experience
that when using valuation models such as the DCF as a tool,
we help management isolate the value drivers of a business,
thereby helping executives make better business decisions.
As it is generally accepted that the DCF is, in fact, the
only "correct" methodology to accurately value a business,
hence, we at CENAK use the DCF method primarily as a management
tool. The key for the usefulness of a DCF is what assumptions
go into the analysis. As such, the DCF is widely used and
relied upon in business and investment banking, making it
the basis for almost all value negotiations. In fact, we often
put more emphasis on running different scenarios with divergent
assumptions rather than relying on a single case with a single
return or present value.
Valuable In Almost Every Business Situation
Valuation models can be prepared for almost every business
situation. They are most commonly used for valuing stand-alone
businesses that wish to raise equity such as in the case of
IPOs or Venture Capital, in Mergers & Acquisitions (merger
models) and for large projects that evaluate a project's ability
to raise project finance debt. It is also used to calculate
returns to equity investors. As a dynamic tool for creating
business plans, DCFs are best suited for businesses or assets
where future performance can be estimated with some degree
of certainty. By way of example, the DCF is particularly well
suited for businesses with underlying long-term contracts
such as power plants. Power plants typically have long-term
feedstock supply contracts (e.g., for coal or gas) and electricity
marketing contracts (e.g., for the sale to the local electricity
company), thereby making it easier for the analyst to make
reasonable assumptions for the future. On the other hand,
it is more challenging to forecast high tech start-ups mostly
because of the uncertainty of demand for new products. However,
in these instances, the DCF can still be an excellent analysis
tool, for example for evaluating working capital needs in
different growth scenarios. In fact, it is the only meaningful
valuation and analysis tool for start-up businesses with no
revenues as multiple analysis makes only sense for established
businesses with positive margins.
Customized Solutions
Financial models are highly customized tools and the time
required to prepare a DCF can vary significantly from case
to case. A single product company valuation is typically less
time intensive than a DCF that is built up from several subdivisions
and subsidiaries. Capital structures play an important role
as well. For example, highly structured debt financing or
sub-debt such as Mezzanine, can make these models quite complex
as compared to a venture that is 100% equity financed.
One Last Word About DCFs
The applicability or practicalities of DCF models have been
discussed at length among scholars and analysts who regularly
use them. It is fairly evident that no single person is able
to accurately forecast 10 or even more years of future performance
of a business. It is for that reason that we at CENAK view
these models as tools rather than as a method for calculating
one single return number or company value. In short, the art
of valuing a business involves many analytical steps in which
the analyst runs different scenarios, followed up by analyzing
their results and the impact on a business. These results
can ultimately be used to make better and more educated management
decisions for future projects.
