OTM Intrinsic Value Formula

At the meeting yesterday the question was raised about the specific calculation used to determine Intrinsic Value.  There are a number of different approaches — the code for the one presently used (I am happy to refine or improve it) is noted below.  It takes the next 10 years of discounted earnings and adds it to a discounted terminal value based on Enterprise to EBITDA ratio.

aaii_EPS_EG5: the median of analysts estimated 5 year earnings growth rate

aaii_EBITDA_12m: trailing 12 month EBITDA

aaii_EVEDA_12M: Enterprise Multiple.  Ratio of Enterprise value to EBITDA

 

growthrate = aaii_EPS_EG5/100; // value between 0 and 1
discountrate = 0.15; // assumes a 15% discount rate per year
EBITDA = aaii_EBITDA_12m; // trailing 12 month EBITDA
valueyr1 = (EBITDA * ((1+growthrate)^1))/(1+discountrate)^1;
valueyr2 = (EBITDA * ((1+growthrate)^2))/(1+discountrate)^2;
valueyr3 = (EBITDA * ((1+growthrate)^3))/(1+discountrate)^3;
valueyr4 = (EBITDA * ((1+growthrate)^4))/(1+discountrate)^4;
valueyr5 = (EBITDA * ((1+growthrate)^5))/(1+discountrate)^5;
valueyr6 = (EBITDA * ((1+growthrate)^6))/(1+discountrate)^6;
valueyr7 = (EBITDA * ((1+growthrate)^7))/(1+discountrate)^7;
valueyr8 = (EBITDA * ((1+growthrate)^8))/(1+discountrate)^8;
valueyr9 = (EBITDA * ((1+growthrate)^9))/(1+discountrate)^9;
valueyr10 = (EBITDA * ((1+growthrate)^10))/(1+discountrate)^10;
termvalue = (aaii_EVEDA_12M * valueyr10) / (1+discountrate)^10;

NPV = valueyr1 + valueyr2 + valueyr3 +valueyr4 + valueyr5 +
valueyr6 + valueyr7 + valueyr8 +valueyr9 + valueyr10 + termvalue;
shares = aaii_mktcap / C; //total outstanding shares

OTMintrinsicvalue = NPV / shares;

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