UK Valuation question


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Hello,

I am studying for an exam and have a practice question on valuations of businesses.

I want to use the P/E ratio and DVM to value the business, the problem is it is an LLP. I can do the calculations if it is a business with shareholders and work out the dividends, but with an LLP the members obviously don't get dividends and my answers are not coming out right.

We are told that there are 70 members and they have 45% of the 'profit before members' remuneration and profit shares' figure.

I have done the calculation by using the whole of the 45% of the profits, and by dividing that by a further 70 between the members, but it doesn't look right. Any help in the right direction or on how to do a valuation of a partnership would be much appreciated.

Thank you.
 
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bklynboy

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These are not real world methods of valuing a business. Generally you use comaparables in the market and Discounted Cash Flows to estimate current value. P/E is not meaningful at all and I have never heard of DVM.

Using DCF you estimate the future cash flows and discount back at your IRR. Looking at comparables then gives you an idea what similar assets or businesses are going for to get a feel for the what the price is for the industry you are valuing. Together you can create a general price that the buisiness may be worth. BTW we use DCF all the time when valuing private equities - its somewhat subjective based on the inputs (future cash flows and Discount Rate) but is well accepted as a means of valuation.

Does your assignment require you to use P/E?
 

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