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Selection of Comparable Companies.

Model Methodology

In evaluation of the Volcano’s market value we mast resort to the valuation of the
comparable firms and use their values in the valuation model. In order to narrow down the
selection of the comparable firms several measures were taken into consideration.

1. Firms capital structure plays an important role in company’s valuation. It represents the
amount of debt the company has and can take on. It also impacts the valuation of the
company. Since Volcano’s leverage is minimum, related companies were chosen. The
range was picked to be from 0.00 to 0.02 to allow some debt financing in comparable
companies yet to keep it at minimum.

2. In order to evaluate the profit power of the company, the ROA measure was chosen.
Volcano produced net loss and has never reported an income, and measuring return of
assets seems only logical to choose this measure, since it is a relevant estimation of the
profit power of assets. With Volcano’s ROA being negative -.10, the relevant range of -.11
to 0.00 were chosen.

3. Finally, the sales volume was taken into consideration. Sales represent the company’s
ability to sell the product and represents product’s relevance in the market. Volcano’s sales
volume was 227.9 in the year 2009 and the comparable firm’s range was chose to be form
$200 to &250.

With the criteria described above, the selection yielded six potential results: Align
Technology Inc., Arthrocare Corp., Cognex Corp., Cohu Inc., Exfo Inc., and Icx Technologies
Inc. Among these six, Arthrocare, Cohu and Icx Technologies were chosen as the most
relevant ones. Moreover, Arthrocare felt in the same SIC code of 3845 and Cohu and Icx
technologies resembled the closes comparables on the basis of ROA and Sales volume. All
Selected companies possessed similar capital structure. Selected companies are presented
below:

ROA Leverage P/BV


Co. Name SIC Code Sales Rev. (NI/TA) (LTD/TA) P/E (SE) P/S

ICX TECHNOLOGIES
INC 3826 183.427 -0.056 0.000 -26.39 4.93 1.79

ARTHROCARE CORP 3845 331.61 -0.015 0.000 -110.30 3.47 1.92

COHU INC 3825 171.261 -0.085 0.000 -12.41 1.28 1.91

Averages: 228.76 -0.097 0.000 -49.7 3.23 1.87

VOLCANO CORP 3845 227.87 -0.105 0.000 -- -- --

Valuation:

1
There are three potential models available for our use:

P* (estate tax purposes) = Book Value (SE) Per Share * (Average P/Book Value Per
Share)
and/or
P* (estate tax purposes) = Sales Revenue Per Share * (Average P/Sales Revenue Per
Share)
and/or
P* (estate tax purposes) = Earnings Per Share * (Average P/E).

Due to the fact that Volcano has negative income P/E is not the best model. With the
remaining two, the following valuation was possible:

1. P/BV:
BV per share*average P/BV = $4.40*3.23 = 14.212

2. P/S:
Sales Rev. per share average P/S =$4.67*1.87=8.73

The value per share for both models * 10,000 shares produced the following two
possible values of the estate:

1. $142,120
2. $87,329

Given that the valuation of Volcano with the second model is significantly less then
the one in the first model, and, in order to avoid biased valuation, the value derived
with the first model would be considered.

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