West teleservice valuation Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Multiple Value of West Tele service:

Through multiple value approach there are many values that are available to value one company. There are multiple methods that are acceptable and used to value a company. The value of multipliers methods needs to consider market conditions of that industry. It requires a detailed research of market last acquisitions and their average according to the size and beta of the company.

There are several valuation methods used as a multiples but we are considering three methods here that are used in industry practices in tele service.

Revenue method:

The first common method for valuation service is revenue method that is used to forecast the business value. This valuation method is used to determine the maximum value of a company by multiplying a number with its current year revenue of the company. The times value is used to determine the efficiency of the company of generating revenues and profits for future.

In revenue method the current revenue of company is fore casted as $325 million for 1996 (exhibit 8 of the case). The revenue figure is not real term for 1996 but it is the average revenue after considering the future growth prospect of the industry and company potential to earn future revenues.

This figure is estimated and it is not real but the increased figure is acceptable because of the industry is growing. The value of business is around $1.17 billion through revenue method. The figure is multiplied by 3.6 times multiplier that is equal to that APAC’s multiplier for last sale transaction.

It is estimated that the West Tele services (WT) is equal of the size and future prospect of growth to that APAC Company. However, a little lower amount is acceptable by West Tele services because it is always a higher amount to value the company. It is the maximum bid price that can be offered,however the share prices shoot on the market in case of APAC for its first day.

APAC was performing very well but West’s revenues are higher of that however, the profits and reputation of company were very good therefore the share prices increased by 24% in its first day of IPO.

The share price must be $205 per share at an issue of 5.7 million shares IPO.

Operating Profit Multiplier:

The operating profit multiplier is same for West as APAC that is 27.8 times,however, this method looks more profit motive as the revenue method just focuses on the revenue.

The value of business is around $1.37 billion through profit multiplier. The profits for the year 1996 are estimated to be $49.3 million and these are the profits that are adjusted with future growth prospect.

The share price for IPO under operating profit multiplier is $240 per share. The price is higher than that of revenue method, it means that profit percentage of West Teleservices is better than that of APAC.

West Tele services is performing well as its profits are impressive, therefore the higher price charge can be acceptable by the investors and general public while proceeding for IPO.

Net Profit Multiplier:

The net profit multiplier is 45.3 times as equal to APAC and through this multiplier the value of the company is around $1.3 billion.

The net profit of the company is around $28.7 million and its profits are very attractive as earning per share.It is above $5 for the year with 5.7 million share issue.

Earnings of the company are impressive and the boost in share price can be acceptable on the first day of share issue.

West teleservice valuation Case Solution

When a multiples approach makes sense?

It makes sense for many reasons and some of them are discussed below.

It considers the growth affect therefore it makes sense for companies that are under growing industry. This case is applicable for West Tele services that is under growing industry.
It incorporates the systematic risk, West Tele services is under the industry that faces a competition from new entrants and market leaders therefore it also makes sense because it incorporates the risk of industry.
The growth of the business has importance but the quality growth is something that matters for future growth prospect. The quality capital expenditure is incorporated in multiples method.

It also incorporates the rate of tax of that industry for present and future prospect of tax. This makes sense in every industry because the tax is an expense that company needs to bear and its incorporation is necessary while valuing business.......................................

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