2017 Valuation Handbook - International Industry Cost of Capital

Acknowledgements xiii

Introduction 1

Who Should Use the Valuation Handbook – International Industry Cost of Capital 2

Industry-level Cost of Capital Estimates 3

Industry-level Statistics, Capital Structure, Valuation Multiples, and Betas 4

New in the 2017 Valuation Handbook – International Industry Cost of Capital 4

Methodology 5

“Data Through” Date 5

Countries of Incorporation 5

Company Type 5

Currencies Used 5

Global Areas Covered 6

Industry Identification by GICS Code 9

Minimum Number of Companies Required 10

Data Sources 10

Derivation of Long-term Risk-free Rates and Long-term Equity Risk Premia 13

Company Screening Process 16

Identifying Initial Company Sets 17

Additional Company Screening 18

Medians and Industry Composites 23

“Latest” and “5-Year” Averages 26

Calculation of Industry Financial Statistics 31

GICS Code and Number of Companies in the Main Set 31

Global Area and Currency 31

Graph – Relative 5-Year Performance 31

Three Largest and Three Smallest Companies by Sales and Total Assets 31

Annualized Monthly Performance Statistics 31

Number of Companies in the Median, the Composites, and the High-Financial-Risk Category 33

Return Ratios 34

Liquidity Ratio 38

Profitability Ratio 39

Graph – Operating Margin 39

Beta Overview 40

Levered Betas 41

Adjusted Betas 45

Graph – Betas (Levered ) 47

Unlevered Betas 48

Leverage Ratios 49

Graph – Capital Structure, GICS Composite 53

Derivation of Long-term Growth Rates 53

Equity Valuation Multiples 54

Enterprise Valuation (EV) Multiples 61

Graph – Enterprise Valuation Multiples 66

Long-term Risk-free Rates and Long-term Equity Risk Premia 66

Cost of Capital Estimates 68

CAPM 68

Discounted Cash Flow (DCF) Models 70

1-Stage DCF 70

3-Stage DCF 72

Cost of Debt 75

Weighted Average Cost of Capital (WACC) 78

WACC Calculations 82

WACC – Graph 83

Appendix A

Definitions of Standard & Poor’s Global Vantage Database Data Items Used in Calculations

Industry Data Exhibits

World Company Set

Industry Data Exhibit 1: World Company Set, in € EUR

Industry Data Exhibit 2: World Company Set, in £ GBP

Industry Data Exhibit 3: World Company Set, in $ USD

European Company Set

Industry Data Exhibit 4: European Union, in € EUR

Industry Data Exhibit 5: European Union, in £ GBP

Industry Data Exhibit 6: European Union, in $ USD

Eurozone Company Set

Industry Data Exhibit 7: Eurozone, in € EUR

Industry Data Exhibit 8: Eurozone, in £ GBP

Industry Data Exhibit 9: Eurozone, in $ USD

United Kingdom Company Set

Industry Data Exhibit 10: United Kingdom, in € EUR

Industry Data Exhibit 11: United Kingdom, in £ GBP

Industry Data Exhibit 12: United Kingdom, in $ USD

Roger J. Grabowski is a managing director with Duff & Phelps. He is coauthor of Cost of Capital – Applications and Examples, Fifth Edition, The Lawyer's Guide to Cost of Capital, and Cost of Capital in Litigation.

James P. Harrington is a director at Duff & Phelps. He is a leading contributor to Duff & Phelps' efforts in the development of studies, surveys, online content and tools, firm-wide valuation models, data distribution platforms, and published thought leadership. He is a coauthor of the Duff & Phelps "Valuation Handbook" series, a contributing author to Cost of Capital – Applications and Examples, Fifth Edition, and a Duff & Phelps contributor to the Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook.

Carla S. Nunes is a managing director in the Office of Professional Practice at Duff & Phelps, where she provides firm-wide technical guidance on a variety of valuation, financial reporting, and tax issues, with a particular focus on cost of capital. She is a coauthor of the Duff & Phelps "Valuation Handbook" series and a contributing author to Cost of Capital – Applications and Examples, Fifth Edition.