Capitalisation of Future Maintainable Earnings the formal name for the type of methodology used in the Report. Our methodology is perhaps better defined as an Adjusted Capitalisation of Maintainable Earnings.

The valuation methodology which involves capitalising the earnings of a business at an appropriate multiple which reflects the risks underlying the earnings together with growth prospects.

When valuing a parcel of shares in a company consideration needs to be given as to whether the purchaser will acquire a controlling interest in the company. Based on experience and Australian studies InterFinancial uses a premium of 30% in its analysis.

Actual transactions of like businesses by way of sales through takeovers, IPO’s or mergers & acquisitions are the most tangible evidence of true value. The problem is that the transaction needs to have occurred within a reasonable time frame as values date quickly.

Earnings Before Interest and Tax.

Earnings Before Interest Tax Depreciation and Amortisation.

A general term to describe profits. These can be at various levels from Gross Profit, EBITDA, EBIT, NPBT but generally are at a NPAT level. It is important to ask someone using the term at what level they mean.

The Enterprise Value is the value of the entire business including, in addition to equity, the interests of others that have a claim over the assets, including banks. In other words, the Enterprise Value takes account of the total funding of the business and equals the sum of the equity plus the net debt.

The equity is that part of the business that is owned by the owner and shareholders. If the business was sold and all debt repaid, the Equity Value would be the residual amount.

An investment in unlisted assets cannot be readily brought and sold. This lack of liquidity makes the investment less attractive, and therefore less valuable than otherwise similar investments which are more liquid. Based upon studies the average liquidity discount is 20%.

Maintainable earnings are either ‘adjusted’ current year’s profits or ‘adjusted’ next year’s profit. Earnings need to be adjusted for either ‘private’ expenses that will not be incurred by new owners and one-off or non-recurring income or expense items. Similarly, adjustments need to be made for sub-market salaries paid to proprietors working in the business that would need to be replaced by professional managers or salaried staff.

A Multiple is an earnings multiple observable from examination of trading multiples of listed companies based upon current share prices or transaction multiples from the sale of similar businesses.

Net Debt is a positive number if you have more debt than cash in the business. It will be a negative number if there is more cash than debt in the company.

Net Profit After Tax.

Net Profit Before Tax.