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QuestionsCategory: Valuation QuadrantValuation Quadrant Checklist
Yong asked 4 years ago

Hi, in valuation quadrant checklist, we need to:  
a) remove exceptional gain/loss items from earnings / cashflow.
Is this referring to the extraordinary items in Income Statement?
Is this ‘automatically’ applied to cashflow? If not, how do we adjust the cashflow – what items should we look out for to +/-? Appreciate an example.
b) any potential shares dilution
How do we calculate this and where to adjust in the Financial Numbers sheet? Appreciate an example. Thanks!

4 Answers
Victor Chng answered 4 years ago

Hi Yong,
1.You just have to remove extraordinary item from earnings. For cashflow, you do not need to do any adjustment.
2. I don;t understand your question on potential shares dilution. Can you give me an example or context so I can explain to you from there.

Yong replied 4 years ago

Thanks, Vic. on shares dilution – was actually referring to the checklist. not too familiar with shares issuance terminology. perhaps – stock options, warrants?

Saw another valuation method in checklist – Sum of Parts for conglomerate companies. How is this calculated and how do we determine it is a conglomerate company?

Victor Chng answered 4 years ago

Hi Yong,
1.Share issuance are the following 

  • Warrants
  • Stock options
  • Placement
  • Right issue
  • Bonus share (There is no dilution in this share issuance)
  • Split (There is no dilution in this share issuance)

2.Sum of parts valuation (SOP) are usually use for conglomerate companies. Conglomerate companies are company which consist of more than one business. Hence different business required different valuation method. For instance, Boustead Singapore is a conglomerate business as they have energy business, property business, water business and geo spatial business.  

Yong answered 4 years ago

Thanks, Vic! On shares adjustment, how do we actually calculate, say share option/warrants at lower value of market price? This adjustment only applies for valuation and we do not consider this in other financial ratios – assuming all options fully taken up?
On Sum of Parts, this is normally within same annual report and we would need segmentize it’s Cashflow, Balance Sheet, etc accordingly? What happens to other values we can’t segment down?

Victor Chng answered 4 years ago

Hi Yong,
You only need to do share adjustment for Share split, Bonus issue and right issue because the share price will be adjusted. As for other share issuance, adjustment is not needed.
Under the segment information, usually will breakdown the different segment profit.