How to forecast the revenue for valuation
Hey, let's understand how we can make assumptions for revenue based on the analysis of what industry is giving growth, what management expects on revenue growth, and what the street analyst expects for future income. We will understand all of this.
As of now, I was valuing Page Industry Limited who have the exclusive license of the JOCKEY brand for manufacture, distribution and marketing in India, Sri Lanka, UAE and other places.
Jockey is the premium innerwear for men, women and children with good quality and also the company has exclusive license for Speedo Internation for sports, swimwear and other segments.
Historical Growth:
I will start with a historical revenue analysis of the company and how the company performed in the past, and I will assess the company.
We can take the median of historical revenue growth but it depends upon the stage. At this stage, the company is suffering. Historical growth can work for almost mature companies.
Growth Drivers:
Before making assumptions we need to understand the company revenue driver. What is the driver spread in the market that revenue will generate in future? So we analyse the Driver and understand what growth prospects are for the future.
Industry Analysis:
After assessment of the Growth Driver understand the industry. In which industry the company is doing business? In my case "Apparel and Textile Industry".
So analyse the industry of what CAGR growth will be Globally and in India Prosperous. Use the various sources on open-source (Google).
Management Expectations:
Who can make assumptions about whether the company will Grow or not?
it's simple,
the company management,
Who is involved in day-to-day business transactions? They can make pure assumptions that how much the company will grow in the future.
Yes, I can say that the management can't say exact value but management can tell the assumption on a experience basis.
So, in India, the company always holds a press conference where the various Research Analysts come and ask questions about the company's business and recent performance and after this conference, the company publishes the concall report every quarter.
I can go and read the concall and understand about the all things that management Expectations.
Street Estimation:
Street Estimation is nothing that the Equity research report which has already been published by various Research analysts for free. That is called a buy-side report.
Where the analyst researches the company with a details analysis and then gives the target of share price to the public domain.
I can check the Equity research report to understand what the analyst expects for the future
And now, at the end of these analyses, we make assumptions about how much the growth rate I can give for revenue.
Obviously, for valuation, we need to forecast for 10 years. So firstly, we give high growth to the first 5 years and and then will reduce the industry's future growth as per analysis but remember it depends on the stage.
Thank you for reading my content on revenue growth assumptions.
Please share your thoughts on this in the comment box or mail to mailboxakash2@gmail.com
Once again Thanks for reading
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