This is a useful read if you are interested in valuing an organisation such as Xero.
I’ve been asked too many times what I think of Xero’s valuation — whether it’s in the last few months, or in the years gone by. I don’t have much time, so decided to set myself a time and information limit and give it a go.
So let’s walk through how to do a valuation:
1: based on very limited information — specifically, just one piece of information — this earnings release from yesterday:
2: And I will try to do it in an hour. I really don’t have that much time.
Constructing the financial forecast
We start by putting down what we know from the earnings release into a spreadsheet.
There is not much there, but it should, however, be enough.
We next work out some ratios, and back-fill the run-rate numbers for September 2012. From now on we are starting to make assumptions, but we are using the…
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