April 2010 Web Extra: Wall Street valuation model

In his April column, Jim Huston laid out the Wall Street model of valuing companies with high revenues.

You can download an Excel file here that illustrates the model in action.

The first scenario is for a highly profitable company (EBIDTA is 25.1%). The second is for a company with normal earnings (EBIDTA is 15.1%). The resulting value of the highly profitable company is double that of the less profitable one. While application of the EBIDTA evaluation model may vary from one consolidator to another, and the industry multiplier may be adjusted for specific situations, the basic process is the same.