Certified Valuation Analyst Market Approach and Comparable Analysis 3

Question 1

A guideline company's MVIC/Revenue multiple is 1.2x and the subject's revenue is $5,000,000. The indicated MVIC is:

Accepted Answer

$6,000,000

Answer

1.2 multiplied by $5,000,000 revenue equals $6,000,000 of invested capital.

Question 2

After deriving MVIC, how does the analyst arrive at equity value for the subject?

Accepted Answer

Subtract interest-bearing debt from MVIC

Answer

Equity value equals MVIC less the company's interest-bearing debt.

Question 3

Which statistic is often preferred over the simple mean when summarizing guideline multiples skewed by outliers?

Accepted Answer

Median

Answer

The median reduces the distorting effect of outliers in a small set of multiples.

Question 4

Why might an analyst select a multiple at the lower end of the guideline range for a subject company?

Accepted Answer

The subject is smaller and riskier than the guidelines

Answer

Smaller, riskier subjects typically warrant multiples below the guideline median to reflect that added risk.

Question 5

Trailing twelve months (TTM) earnings are used in a multiple primarily to:

Accepted Answer

Smooth seasonality and reflect the most recent full year

Answer

TTM captures the most recent full-year performance and smooths intra-year seasonality.

Certified Valuation Analyst Practice Test