Corporate Valuations & Shareholder Value (Overview)

Predyct Analytics conducts shareholder valuations across industry where it applies its proven shareholder Valuation Model (SVM). Most financial analysis today assesses value based on very primitive peer analysis and conventional measures of financial performance that have very little predictive power (See “Why We Are Different”). Conventional financial analysis today does not:

• Adjust the capital structure of peers so that meaningful comparisons can be made of key financial metrics among peers
• Methodically assess the earnings of the different strategic business units (SBU) within a company inclusive of transfer pricing effects
• Risk adjust earnings
• Allocate capital to the different business activities (SBU) in order to risk adjust earnings and observe SBU profitability and “real” return on equity
• Measure embedded value (i.e., Embedded value is the earnings spread a company or business unit obtains after subtracting out its cost of capital)
• Select peers that most closely reflect the activities of the company being valued
• Identify firms’ financial reporting policies for accounting anomalies (particularly related to intangible assets) to make sure that risk and value metrics are performed on a comparable basis across peers: See the impact of Intangible Asset values in corporate valuations

Without these adjustments Predyct has demonstrated that the conventional measures of financial performance will not explain more than about 40% of a company’s market value variation. Applying Predyct’s SVM framework will result in more than 90% of a company’s market value variation being explained. Why don’t more companies use Predyct’s approach? This is primarily due to the time and expense of this procedure as well as to the technical difficulty of executing this approach. Our approach is completely consistent with modern financial theory. We invite the reader to review our presentation on shareholder value and corporate valuations as well as to review our case histories to see the “Predyct Analytics” difference.