Valuation (Positive)

Valuation (Positive)

The evaluation of the quantum cryptographic device manufacturing and sales business based on the five-year projected income statement is as follows.Note: The referenced profit and loss statement reflects a high growth rate with a compound annual growth rate (CAGR) of approximately 30%.

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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: $16,639,066

  • Year 4: $23,381,246

  • Year 5: $31,794,140

Based on the above, FCF is assumed to be 80% of the operating profit. This is a conservative estimate considering depreciation, changes in working capital, capital expenditures, and other factors.

• Year 1: $6,115,468

• Year 2: $8,395,379

• Year 3: $13,311,253

• Year 4: $18,705,997

• Year 5: $25,435,312

Discounting to Present Value:

• Year 1: $5,559,516

• Year 2: $6,937,503

• Year 3: $9,997,573

• Year 4: $12,775,180

• Year 5: $15,793,546

Total Present Value of FCF Over 5 Years: $51,063,318

Calculation of Terminal Value (Continuing Value):

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

  • $25,435,312 * 1.02 / (0.10 - 0.02) = $324,049,718

• Present Value of Terminal Value: $324,049,718 / (1.10^5) = $201,240,306

Calculation of Enterprise Value:

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

  • $51,063,318 + $201,240,306 = $252,303,624

Conclusion:

As a result of the valuation using the DCF method, the estimated enterprise value of this company is approximately $252.3 million. This valuation reflects the following factors:

• High Growth Rate: Indicates rapid growth with a more than fourfold increase in operating profit over five years.

• Improved Profitability: The absolute amount of operating profit increases significantly each year, indicating economies of scale and improved business efficiency.

• Future Prospects: A 2% perpetual growth rate suggests that the market expects stable long-term growth.

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

This enterprise value assessment reflects strong 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, a more conservative valuation will be attempted.