Pre and Post Money Valuation Sheets
The pre and post money valuation spreadsheet enables a startup company to enter the monetary amount of equity they have in the company and the estimated value of the investment necessary to launch the business. It also calculates the pre money valuation and compares it with the post market value. To calculate the value of an IPO you only need to know the market cap and the price per share. Then this value is divided by the number of shares outstanding to get the diluted share value per share. This calculator can be used for all kinds of valuation models, not just an IPO. This includes private offerings, leveraged buyouts, reverse merger transactions and other types of financing.
The pre and post money valuation spreadsheet allows investors to enter the amount of equity they would like to invest, the dollar amount of the investment required, the investment maximum and a dollar amount of annual return on investment. Then investors can run a series of financial projections to estimate the value of the equity investment, take advantage of dividends and interest rate discounts and project future financial performance. Investors can also use the financial projections to compare a new capital structure to current circumstances to project short and long-term cash flows. The calculator assumes that all revenues are earned within the first three years. However, revenues might earn more in later years if the company grows significantly. To project short-term liquidity demands investors can use the minus yield calculation where the higher the projected growth rate the lesser the dividend.
The pre and post money valuation spreadsheet allows investors to make a range of financial projections to compare the capital structure to its actual results. Projected earnings are derived by applying a spreadsheet model to estimated cash flows from operations and reinvestment activities. The resulting model gives the investors a range of possible outcomes based on the initial investment requirements. Each outcome is then converted to a range of values from zero to one, representing the expected annualized return on investment. Dividing these values by the anticipated annualization date allows investors to calculate the discount that needs to be paid on the investment.
The pre and post money valuation formula was designed to provide investment management with an easily usable mathematical model that is used to make valuation estimates. This method is widely used by managers and accountants to make financial assumptions about a variety of projects. By using post-value estimates of the capital structure it becomes possible to make quick postulation decisions. Without this knowledge it would be difficult to make decisions regarding the funding of specific projects or even to invest in certain projects.
There are several advantages to using a pre-value financial model. First, it helps provide a transparent framework for decision making. It eliminates the need to make a complex and uncertain estimates of the investment needed for any project. Second, by eliminating the need for an economic model, the decision process is made much easier. Third, by allowing multiple estimates of the investment required it becomes possible to make very reliable financial projections.
The pre and post money valuation formula can be used as a standalone financial model or it can be incorporated into a more comprehensive model. The advantage of a standalone model is that it is simpler to use than a full fledged economic model. When all the numbers are needed for making a projection then the full fledged model is usually too complicated to use without some sort of guide. By using the post-value estimates it is possible to have a system that uses several different models of investment that are based on several assumptions. Therefore, the number of assumptions can grow over time as the business grows.
As a result, there will always be a need for a post-value estimate when making financial projections. There is also the possibility of an economic downturn and inflation. In these situations the pre-value estimates become extremely important to project future performance. It is also important to have good financial projections because the valuation will be used for tax purposes and to ensure the business's solvency.
However, the pre-value estimates would be very uncertain at any point in time. They would depend on several different economic factors. The value would also need to be calculated in an environment that did not have any major ups or down turn. It is very difficult to project the direction of any economy and to project value blindly at times is virtually impossible. Therefore, the pre-value estimates would be extremely volatile and subject to change.