Valuation | Simple Example | Discounted Cash Flow (DCW) | Company Name: Print Mario | Part I
​"Every Story has a Number and Every Number has a Story" - Dr. Aswath Damodaran

Facts:
   1. Company Name: Print Mario
​   2. Company Location: Bhopal India
   3. Company Type: Customized Printing 
   4. Company Current Products: Standard Cake Boxes | Customized Boxes For All Business Types | Customized Paper Bags | Other Misc. Print Products (Customized 
​       Curtains | Customized Brand Shirts | B2B Products | Customized Wedding Stationaries, Welcome Standees)
   5. Company Future Products: 3D Printing | Corrugated Boxes | Rigid Boxes
   6. Company Revenue Break-up: Boxes = 40% of revenue | Customized Paper Bags  = 30% of revenue | Other Misc. Print Products=30%
   
​
Assumptions:
  1. Current Annual Revenue: Rs. 425,000/month * 12 months = Rs. 51,00,000
  2. Cost of Goods Sold (COGS): Rs. 50,000/month * 12 months = Rs. 6,00,000
  3. Gross Profit: Rs. 45,00,000
  4. Profit Margin: 30%
  5. Annual Growth Rate: 25% for revenue.
  6. Reinvestment Rate: 30% of profit is reinvested to sustain growth
  7. Forecast Period: Typically, a 5-year forecast is used for small businesses: 2022-2028
  8. Interest Rate: 8% 
  9. Tax Rate: 5%
  10. Discount Rate: 12% (based on the risks involved in the success of startup business)
  11. Perpetual Growth Rate: 4% (for calculating terminal value)
  12. Annual Depreciation: Rs. 3,00,000 (machines are getting old and each year their value needs to be reduced)
  13. Operating Expenses: Rs. 3,720,000 annually (monthly Salaries Rs.1,70,000+Rs. 30,000 monthly marketing budget+ Rs. 40,000 monthly new material purchases, Rs. 30,000 rent, Rs. 40,000 monthly debt)​​. Note: This includes owners salary as well.

Income Statement:
​
Revenue:                        Rs. 51,00,000
Cost of Goods Sold:     Rs. 6,00,000
Gross Profit:                  Rs. 45,00,000
Operating Expenses:    Rs. 3,720,000
Depreciation:                 Rs. 3,00,000
Operating Income:        Rs. 4,80,000 (Gross Profit - Operating Expenses - Depreciation)
Interest Expense:          Rs. 8,000
Pre-tax Income:             Rs. 4,72,000 (Operating Income - Interest Expense)
Taxes (5% of Pre-tax):    Rs. 23,600
Net Income:                    Rs. 4,48,400 (Post-tax Income - Taxes)

​Assets:
  1. Current Assets: Rs. 5,00,000 (Raw Material -> Paper)
  2. Long-term Assets: Rs. 51,80,000 (Plant & Equipment - Depreciation + New Purchases | (50,00,000 - 3,00,000 Depreciation + 4,80,000 New Purchases))
  3. Total Assets: Rs. 56,80,000

Liabilities and Equity:
  1. Current Liabilities Rs. 3,720,000 (salaries, marketing, raw materrial purchase)
  2. Long-term Liabilities: Rs. 100,000 (The taxes that the firm would have to pay which are deferred until now)
  3. Equity: Rs. 18,60,000 (Total Assets - Total Liabilities)

Cash Flow Statement for Year 1:
Cash Flows from Operating Activities
Net Income: Rs. 4,48,400 
Depreciation Rs. +3,00,000
Net Cash from Operating Activities: Rs. 7,48,400 (this includes reduction in cash flows after annual raw material purchase and monthly debt payments)



​
Assumption Justification:
  1. Current Annual Revenue: Rs. 425,000/month per month
  2. Profit Margin: 30%, implying an annual profit (before tax) of Rs. 15,00,000/year
  3. Annual Growth Rate: 25% for revenue | powered by 30% profit reinvestment | Industry Growth Rate = 19.48% (Paper Packaging) & 35% (Corrugated Boxes) & 5.08% (Paper Bags) | 26.7% ( Indian Packaging)
  4. Logic for high Growth Rate: Less to no competitors in the customized Paper packaging industry | Industry is unorganized and no (to few) shop/small/large offset is ready to create products on demand. Each seller has their specialty.
    1. Example: someone might have the best digital/offset printers, they likely will not have the best creative product designers.
    2. Example: someone might have best T shirt printing ability: they likely will not have best XX
    3. Example: someone might have die punching machine; they likely will not have the ability to make them into customized high quality paper bags 
    4. Example: someone might have box printing experience: they likely will not know how to make a specialized box with specialized cut foams 
    5. Example: someone might have an online presence with more than one print products; they likely will not have a physical office and video/phone call available designers on call
    6. Example: someone might have one or more features; they likely do not share the same trust | experience | online active presence | ready sample for touch and feel for a wide range and variety of products | active, smart, and young marketing team

5 Step Method:​

1. Forecast Future Cash Flows:
We project future annual profits based on the updated growth rate of 25% and a profit margin of 30%.Year 1 @12% discount rate:
  • Revenue Calculation: Rs. 748,400 * (1 + 0.25) = Rs. 935,500
  • Cash Flow Calculation (considering 30% cash reinvestment of profit): Rs. 935,500 * (1 - 0.3) = Rs. 654,850
  • Present Value Calculation: Rs. 654,850 / (1 + 0.12)^1 = Rs. 584,687.5
Year 2:
  • Revenue Calculation: Rs. 748,400 * (1 + 0.25)^2 = Rs. 1,169,375
  • Cash Flow Calculation (considering 30% cash reinvestment of profit): Rs. 1,169,375 * (1 - 0.3) = Rs. 818,562.5
  • Present Value Calculation: Rs. 818,562.5 / (1 + 0.12)^2 = Rs. 652,553.01
Year 3:
  • Revenue Calculation: Rs. 748,400 * (1 + 0.25)^3 = Rs. 1,461,718.75
  • Cash Flow Calculation (considering 30% cash reinvestment of profit): Rs. 1,461,718.75 * (1 - 0.3) = Rs. 1,023,203.12
  • Present Value Calculation: Rs. 1,023,203.12 / (1 + 0.12)^3 = Rs. 728,295.77
Year 4:
  • Revenue Calculation: Rs. 748,400 * (1 + 0.25)^4 = Rs. 1,827,148.44
  • Cash Flow Calculation (considering 30% cash reinvestment of profit): Rs. 1,827,148.44 * (1 - 0.3) = Rs. 1,279,003.91
  • Present Value Calculation: Rs. 1,279,003.91 / (1 + 0.12)^4 = Rs. 812,830.10
Year 5:
  • Revenue Calculation: Rs. 748,400 * (1 + 0.25)^5 = Rs. 2,283,935.55
  • Cash Flow Calculation (considering 30% cash reinvestment of profit): Rs. 2,283,935.55 * (1 - 0.3) = Rs. 1,598,754.88
  • Present Value Calculation: Rs. 1,598,754.88 / (1 + 0.12)^5 = Rs. 907,176.46

3. Calculate Terminal Value: Using the Gordon Growth Model with a perpetual growth rate of 4%.
  • Terminal Value = Year 5 Profit × (1 + 4%) / (10% - 4%) ≈ Rs. 54,93,164.06 × 1.04 / 0.06 ≈ Rs. 9,56,34,433.78
4. Discount Terminal Value @10% (investing in Print Mario is riskier than risk free rate of 6-7% on FDs/Govt Bonds + 
  • Discounted Terminal Value = Rs. 9,56,34,433.78 / (1 + 12%)^5 ≈ Rs. 5,42,65,546.1
5. Sum of Present Values
  • Total Present Value = Sum of Present Values of Year 1 to 5 + Discounted Terminal Value ≈ Rs. 20,45,454.55 + Rs. 23,17,355.37 + Rs. 26,26,634.23 + Rs. 29,70,329.13 + Rs. 33,42,607.81 + Rs. 5,42,65,546.1 ≈ Rs. 6,52,50,570
Thus, the updated DCF valuation of "Print Mario" is approximately Rs. 65.25 million (Rs. 6.25 Crore), reflecting its strong growth prospects and profitability. This is a simplified model, and real-world valuations would likely incorporate more detailed financial data and market analysis.

​- I try to study Dr. Aswath Damodaran and all my Valuation articles are motivated from insights and teachings from Dr. Aswath Damodaran. So, all credits to Dr. Damodaran and his teaching style.
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