Valuing Xero – in 1 hour

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…