Financial Model, Key Ratios, & Valuation

Financial Model

Time 0 Time 1 Time 2 Time 3

Revenue Build / Unit Economics

Product #1 high marketing cost, flat margins, low growth

Quantity sold 10 10 10 11
Price per unit 7 7 7 7
Cost per unit 2 2 2 2
Unit marketing cost (CAC) 3 3 3 3

Product #2 high growth & pricing power, low quantity, low marketing spend
Quantity sold 3 3 3 4
Price per unit 25 26 28 29
Cost per unit 10 10 10 11
Unit marketing cost (CAC) 5 5 5 5

Income Statement

Revenue 145 156 169 182

Variable COGS 50 53 57 60
Fixed COGS 15 15 16 16
Gross profit 80 88 96 106
Variable SG&A 45 47 50 53
Fixed SG&A 5 5 5 5
EBITDA 30 35 41 48
D&A 10 10 10 10
EBIT 20 25 31 37
Interest 18 18 19 19
EBT 2 7 12 18
Taxes 1 2 4 6
Net income 1 4 8 12
Shares 5 5 5 5
EPS 0.3 0.9 1.6 2.4

Mini Cash Flow Statement

Net income 4 8 12
D&A 10 10 10
Other 0 0 0
Operating cash flow 14 18 22
CapEx (= D&A) (12) (12) (12)
Other 0 0 0
Investing cash flow (12) (12) (12)
Debt raised 6 6 6
Equity raised 0 0 0
Other 0 0 0
Financing cash flow 6 6 6
Change in cash 8 12 16

Unlevered free cash flow 14 18 22

Mini Balance Sheet

Cash on hand 100 108 120 137
Debt 300 306 312 318
PP&E 100 102 104 106
Valuation
Key Ratios

Time 4 Time 5 Time 0 Time 1 Time 2 Time 3 Time 4

Product Operating Ratios

Product #1
11 11 Units growth 2% 2% 2% 2% 2%
8 8 Pricing growth 2% 2% 2% 2% 2%
2 2 ROAS 2.3x 2.3x 2.3x 2.3x 2.3x
3 3 Gross margin 71% 71% 71% 71% 71%
LTV/CAC (no recurring here) 1.7x 1.7x 1.7x 1.7x 1.7x
y, low marketing spend Unit contribution margin 29% 29% 29% 29% 29%
4 4
30 32 Product #2
11 11 Units growth 6% 6% 6% 6% 6%
5 6 Pricing growth 5% 5% 5% 5% 5%
ROAS 5.0x 5.1x 5.3x 5.5x 5.6x
Gross margin 60% 61% 62% 63% 64%
LTV/CAC (no recurring here) 3.0x 3.1x 3.3x 3.5x 3.6x
197 213 Unit contribution margin 40% 42% 43% 45% 47%
64 69
16 17 Memo: Inflation 2% 2% 2% 2% 2%
116 128
56 59 Business Operating Ratios
5 6
55 64 Revenue growth 7.8% 7.9% 8.0% 8.2%
11 11 EBITDA growth 17% 17% 16% 16%
45 53
19 20 EBITDA margin 21% 23% 24% 26% 28%
25 33 Contribution margin 46% 48% 49% 51%
9 12 Gross margin 55% 56% 57% 58% 59%
16 22 Net income margin 1% 3% 5% 7% 8%
5 5
3.3 4.3 Valuation Ratios

Market cap 302 302 302 302 302

Shares 5 5 5 5 5
16 22 Price per share 60 60 60 60 60
11 11
0 0 Gross debt 300 306 312 318 325
27 32 Cash on hand (100) (108) (120) (137) (157)
(13) (13) Net debt 200 198 192 182 167
 0 0 Enterprise value (EV) 502 500 494 484 470
(13) (13)
6 6 Leverage:
0 0 Debt / EBITDA 10.0x 8.7x 7.6x 6.7x 5.9x
0 0 Net debt / EBITDA 6.7x 5.6x 4.7x 3.8x 3.0x
6 6
21 26 Debt % EV 60% 61% 63% 66% 69%
Net debt % EV 40% 40% 39% 38% 36%
27 32
Valuation:
EV / EBITDA 16.7x 14.2x 12.0x 10.1x 8.5x
157 183 P/E 232x 68x 38x 25x 18x
325 331
108 110
 1 2 3 4 5

DCF Valuation

Time 5 Time 0 Time 1 Time 2 Time 3 Time 4 Time 5

Key Assumptions

Risk free rate 3%

2% Debt interest rate 6%
2% Tax rate 35%
2.3x Stock's beta 1.5
71% Market rate of return 9%
1.7x
29% Calculating a WACC
Cost of debt 6%
% EV debt 33% CAPM => Beta Calculator
6% Company Market
5% Capital Asset Pricing Model (CAPM) formula Period -5
5.8x Cost of Equity = risk free rate plus beta * Period -4 7% 1%
65% (market return minus risk free rate) Period -3 -5% -3%
3.8x Period -2 27% 13%
48% Cost of equity 12% Period -1 12% 9%
% EV equity 67% Day 0 4% 8%
2% Weighted average cost of capital (WACC)
Var 0.3%
WACC = 10% Covariance 0.5%
Beta of this stock 1.5x
8.3% Calculating a Terminal Value / Multiple
15%
Long term growth rate ("g") 5%
30% Discount rate = WACC 10%
52% Free cash flow * (1+g) 34
60% Terminal value 676 = FCF * (1+g) / (Discount rate - g)
10% Terminal multiple 21x = 1 / (Discount rate - g)

Discounted Cash Flow

302 Unlevered FCF 14 18 22 27 32

5 Terminal value 676
60 Value received 14 18 22 27 708
Discounted value 13 15 17 18 439
331
(183) DCF Value 502
148
450 Sensitivities

Impact on:
5.2x Equity EV-to- Price-to-
2.3x Value EBITDA Earnings
in % Multiple Multiple
74%
33% 1% higher Product #1 unit growth 3% 0.6x 1.9x
1% higher Product #2 unit growth 5% 1.2x 3.5x

7.0x 1% higher Product #1 price growth 8% 1.9x 5.4x

14x 1% higher Product #2 price growth 11% 2.6x 7.5x
 Email: [email protected]
Website: arcana.io
LinkedIn: linkedin.com/in/rich-falk-wallace/

Sensitivities Builder

linked: 302
hardcode 302
Delta? 0.0%

Product 1 unit growth Product 2 unit growth

0% 0%
2% 2% 5.0%
3% #VALUE! 3%
4% #VALUE! 4%
5% #VALUE! 5%
6% #VALUE! 6%
7% #VALUE! 7%
8% #VALUE! 8%
2.8% 5.2%

Stock Beta Calculator

Prices
Company Market
40 1,000
43 1,015
41 980
52 1,105
58 1,200
20x 60 1,300
Product 1 price growth Product 2 price growth
0% 0%
2% 2% 10.9%
3% #VALUE! 3% #VALUE!
4% #VALUE! 4% #VALUE!
5% #VALUE! 5%
6% #VALUE! 6% #VALUE!
7% #VALUE! 7% #VALUE!
8% #VALUE! 8% #VALUE!
7.9% 11.1%