Valuation (Conservative)

Valuation (Conservative)

The following is the valuation of the quantum cryptographic device manufacturing and sales business based on a compound annual growth rate (CAGR) of 15% calculated from the projected 5-year income statement.

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Valuation Using the DCF Method

Assumptions:

• Discount Rate: 10% (Considering the high-risk, high-return nature of the business)

• Perpetual Growth Rate: 2% (Assuming long-term stable growth)

Free Cash Flow (FCF) Projections for Each Year:

• Operating Profit for Each Year:

  • Year 1: $7,644,335

  • Year 2: $10,494,224

  • Year 3: $14,896,222

  • Year 4: $18,381,399

  • Year 5: $21,943,869

Based on the above, FCF is assumed to be 75% of the operating profit. This is a conservative estimate considering taxes, changes in working capital, capital expenditures, and other factors.

• Year 1: $5,733,251

• Year 2: $7,870,668

• Year 3: $11,172,167

• Year 4: $13,786,049

• Year 5: $16,457,902

Discounting to Present Value:

• Year 1: $5,212,047

• Year 2: $6,504,684

• Year 3: $8,390,178

• Year 4: $9,414,038

• Year 5: $10,219,959

Total Present Value of FCF Over 5 Years: $39,740,906

Calculation of Terminal Value (Continuing Value):

• Terminal Value = FCF of Year 5 * (1 + Growth Rate) / (Discount Rate - Growth Rate)

  • $16,457,902 * 1.02 / (0.10 - 0.02) = $209,425,351

• Present Value of Terminal Value: $209,425,351 / (1.10^5) = $130,052,829

Calculation of Enterprise Value:

• Enterprise Value = Total Present Value of FCF Over 5 Years + Present Value of Terminal Value

  • $39,740,906 + $130,052,829 = $169,793,735

Conclusion:

As a result of this conservative valuation using the DCF method, the estimated enterprise value of this company is approximately $169.8 million. This valuation reflects the following factors:

• Stable Growth: Indicates solid growth, with operating profit increasing by approximately 2.9 times over five years.

• Improved Profitability: The absolute amount of operating profit increases steadily each year, indicating improvements in business efficiency.

• Conservative Estimate: FCF is assumed to be 75% of operating profit, leading to a more cautious evaluation.

• Risk Consideration: The 10% discount rate appropriately reflects the uncertainties and risks of the business.

• Long-Term Perspective: The 2% perpetual growth rate suggests that the market expects stable long-term growth.

This enterprise value assessment reflects solid growth trajectories and expectations for improved profitability in the future. However, in actual transactions or investment decisions, qualitative factors such as industry trends, competitive landscape, and risks related to technological innovation should also be considered.

In the next section, an attempt will be made to forecast ROI.