Public Company Valuation Workbench
Same company, two buyers. A retail investor buys a few shares at the market price; a buyout fund buys the whole company at a premium with borrowed money. They look at identical numbers and need to answer completely different questions — what does this price already assume, and where would my return actually come from. Both are live below.
The company
Illustrative composites, not real tickers. All figures in $m.
What growth the price assumes, against what companies actually achieve
A reverse DCF solves for the five-year revenue growth that makes the valuation equal today’s price. The curve is the historical distribution for companies of this size; the shaded tail is the share that grew faster.
Value per share across growth and margin
Every cell is a full DCF. The middle row holds today’s margin.
The buyout
Leveraged buyout of the same company, held and sold.
Where the return comes from
The fund’s equity in, the three sources of value, fees, and equity out. The bars sum exactly.
How much premium the fund can pay
IRR against the bid premium. Where the line crosses the target is the ceiling.
Leverage over the hold
Net debt to EBITDA each year, with interest cover underneath.
Two questions that look alike and are not
1. Retail: stop asking what it is worth
A forward DCF asks a retail investor to forecast ten years of revenue, margins and reinvestment for a business they see from the outside, and then produces a precise number from imprecise inputs. The reverse DCF turns that around. The price is known. Solve for the growth that justifies it, and the question becomes one a person can actually reason about: is it plausible that this company grows at that rate for five years?
That judgement is much better with a base rate than without one. Michael Mauboussin and Dan Callahan’s May 2026 update gives five-year nominal sales growth for US public companies with $2–5bn of starting sales from 1950 to 2025: a mean of 6.9%, a standard deviation of 11.1%, from 19,264 observations. The presets sit in that size band and the model solves for a five-year growth phase so the comparison is like for like. The percentile shown uses a normal approximation, which the authors themselves note the distribution does not fit perfectly; treat it as a reference, not a probability.
2. Stock-based compensation is a valuation input, not a footnote
On the software preset, counting stock comp as a cost or ignoring it moves the growth the price implies from about 13% to about 6%. That is a larger swing than any reasonable change to the growth or margin assumption. Stock comp is paid instead of cash salary; the dilution is real even though no cash leaves. A valuation that adds it back is valuing a company whose employees work for free.
3. Buyout: the premium has to be earned back
A fund that pays 30% over the market price and exits at the multiple the market paid before the bid starts the deal with a hole. The bridge shows it as a negative multiple line, and on the services preset it eats roughly half of everything EBITDA growth creates. Most buyout models quietly assume the exit multiple equals the entry multiple — that the next buyer will pay the same control premium. Type the entry multiple into the exit field and watch the IRR jump: that single assumption is often the difference between a deal that works on paper and one that works.
4. Which company is actually a buyout candidate
The four presets span the range. The staples compounder at 16× EBITDA returns low single digits to a fund at any sensible premium — the multiple is too high for leverage to help. The industrial needs the price to fall before a buyout works. Software reaches the high teens only with a take-private cost programme that adds about 250 basis points of margin a year. The unloved services business clears 20% with a 30% premium, because the multiple is low, the balance sheet is under-levered and there is cost to take out. That profile — cheap, under-levered, improvable — is what a sponsor screen looks for.
5. The link between the two buyers
The highest premium a fund can pay and still reach its target is a rough ceiling on what a takeover bid could offer. When that ceiling sits above the market price, a retail holder owns an option on a bid as well as the business. When it sits below, nobody is coming to rescue the share price. Neither is a reason to buy; both are worth knowing.
What this deliberately leaves out
Annual periods; a single debt tranche with one interest rate; no revolver, no minimum cash, no dividend recapitalisation, no management equity or ratchets, no tax shield on the deal fees, no refinancing during the hold. The DCF uses a single cost of capital with no explicit capital-structure change. The companies are composites chosen to illustrate the mechanics, not recommendations, and none of this is investment advice.
Part one covers private companies — stage-appropriate methods, the cap table, and what a liquidation preference does to the founders at exit.