Stock Pitch Worksheet (Page 3 of 4) in pdf

Balance sheet: If you haven’t taken an accounting class, balance sheet health will be difficult

to assess. But in general, you should look at your company’s debt levels on both a relative and

absolute basis. Ceteris paribus, companies with more debt will make riskier investments.

Capital structure: By what means is your firm financed: debt, preferred stock, common

stock, retained earnings? If a company employs more leverage (i.e. more debt vs. equity) it

will make a riskier investment. What is the company’s credit rating? This will determine the

cost at which a firm can raise additional capital—which may be very important for a growing

company.

Cash flow: Does your company generate positive free cash flows? If not, will it begin to

generate cash flows soon? The value of any financial asset is the discounted sum of future cash

flows; therefore this is a very important metric. Estimates of future cash flows are a key input

in DCF models—an important valuation tool commonly used by professional investors.

Part C: Valuation

P/E and peer avg. P/E: You must know the P/E ratio of both your company and its

competitors. You should always include this in your pitch. When comparing P/E ratios, make

sure you are consistent with regard to the denominator. For example don’t use trailing earnings

for one company and estimates for next year’s earning for another company when comparing

P/E ratios. Different industries will have different ranges of P/E multiples, depending on

growth expectations for the industry as a whole.

EBITDA Multiple: Enterprise Value / EBITDA. This is similar to P/E, but is typically used as

a measure of operating profit growth expectations, regardless of capital structure. If the P/E

ratios are very different between the company and its peers, that may reflect very different

capital structures. The EBITDA multiple is then useful as it is a measure of growth that is not

affected by capital structure.

Sources of Information

General financial sites:

-Yahoo! Finance

-Bloomberg terminals

These are good basic sources of information, but once you’ve picked a stock to pitch, you’ll need

to dig much deeper.

Fuqua library resources:

-S&P Net Advantage—provides concise research reports.

FEP, Duke University

Last updated 12/14/11

Stock Pitch Worksheet Page 3