In this lesson, you’ll learn how to create the infamous “football field” valuation graph that shows a company’s implied per share value across different methodologies and assumptions, and the 25th quartile to 75th quartile for each one. To complete this graph, we’ll combine the graphing tools we just learned with the LOOKUP and TRANPOSE functions from the previous module.
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Creating The Football Field Valuation Graph (24:27) Transcript
Hello and welcome to our next lesson in this module on graphs and charts in Excel. This time around, we’re going to being going through a topic that is near and dear to you. If you’ve already been through some financial modeling materials or some of our courses, or maybe even other courses or books, and that’s how to create what is known as the football field valuation graph. Now what exactly is this, just in case you haven’t seen it before? Well, I’m going to pull up some examples onscreen right now, so you can see.
Essentially, what this does is let you see how different valuation methodologies compare, in terms of the company’s implied valuation. So in tangible terms, you can see it right here. Basically this example pitch book from Bank of America/Merrill Lynch is showing a company’s valuation at different ranges, under different assumptions and you see this type of exhibit, this simple graph, no matter what industry you’re in, and no matter what deal type you’re looking at.
Here is another example, slightly different, this one is for a mining company, and this one is actually from BMO Capital Markets, and you can see that it’s basically the same idea. They’re listing what an acquirer has offered for their company, they’re listing the implied valuation under different assumptions, different cases; things like that.
This valuation for Internet Brands, an internet/media company, this one is probably the closest to what we’re actually going to be creating here. I think this one makes it the easiest to sort of see the different ranges, and what a company might be worth under different assumptions.
So this is the format that we’re going to be closest to. But if you keep going, and go through the links I have below this, you’ll see lots and lots of other examples. And even here, this is a Goldman Sachs presentation. They don’t exactly follow this, but they have something like this where they show what the implied premium for a company is under different assumptions here.
So I’ve linked to some of those pitch books and presentations, so you can look at them for yourself. Let’s move back to this right now, and we’re going to pick up sort of from where we left off previously. Now to create this graph, you remember that previously we had created the valuation summary, by using the TRANSPOSE function, and essentially we pulled in a lot of data from the public comps over here.
So we pulled in a lot of data from over there, and specifically, the minimum to maximum valuation multiples. So what we’re going to do with this graph is, we’re going to take all of that data and we’re going to say, “Okay, the minimum multiple set 0.4x revenue, if Wal-Mart’s revenue is $446 billion what happens if we apply that multiple to this revenue? What is their implied share price?”
And in this case it comes out to around $38 or $39 a share. Now the exact methodology here, I’m not really going to get into, because this gets into financial modeling and valuation material, which is covered in the courses on this site, either the fundamentals or advanced course or the industry specific ones.
So I’m not really going to go into the concept of this but that is the basic idea. We have to make some adjustments, if we are getting to an enterprise value-based metric. If we are getting to an equity value-based metric, like the P/E and earnings per share here, we don’t need to make any adjustments, because we’re already calculating that when we multiply it by the company share price.
In any case, I’ve already done the work here for us, because I don’t want to waste time on these types of calculations. Now you can also come up with the same type of implied per share price range from the DCF analysis, and you can see the basic approach here. I’m ranging this from a 5.0% to 7.0% discount rate and a 0.8% to 2.8% terminal free cash flow growth rate.
What does this actually mean? Well, let’s just press ‘CTRL + left bracket’ on one of these and jump back, and you can see what I’m doing. Essentially, I have this area of this table, and I’m ranging it from the very low end here, at the bottom right corner, all the way up to the top left corner right here.
So essentially, this becomes our maximum, this becomes our minimum, and then this becomes our 25th percentile, this becomes our 75th percentile, and then this becomes our medium. I don’t know that there’s actually an official way to decide on this. This is sort of an ad hoc method, but it works well enough, even if strictly speaking, this is not exactly the medium of the set.
In fact, if you look at this, consider this to be the max, consider this one to be the min, this is actually significantly below the medium here, but that’s okay because we’re basing it on the output of the table, instead of the mathematical function here.
I’ve also changed around this table a bit, and made the discount range more narrow and I’ve done that for a number of reasons, but the main one is that we were just getting numbers that were too far apart with the old assumptions. In any case, that’s the setup we need to create this valuation graph. So what we need to do next is go in and actually get to the business of creating this.
Now again, I have some notes over here on the side. Really, the key thing you need to know is that to create this type of valuation graph, this football field graph, it’s really just a bar chart. So if an ‘ALT + NB’, it is really just going to be a stacked bar chart here. So that’s the basic concept, so I’m actually going to insert it, and we’ll drag this over. And actually I should have probably just inserted it over here, so ‘ALT + NB’, and then we want a stacked bar chart.
So the basic setup is not really that complicated. The thing that makes this a little bit tricky is that it’s not enough, to just have the share prices as we do right here. What we need to do to create a bar chart in this case, a stacked bar chart, is to get the distance between each of them, because that distance is going to actually become the bar in this case, each segment of the bar.
And you’ll see what I mean when we get into this, and understand the setup, but that is what you should be aware of. So how do we do this? Well, the first thing to do, and this again, is somewhat counter intuitive, is that when you have a graph like this, we cannot actually start by starting at the top as you’d think.
We actually have to reverse the order here, because of how bar graphs and Excel work, and bar charts work, and how they actually graph things. So we’re actually going to begin with the DCF and the assumptions here, and then move our way upward, up to the very top.
Now to do that, let’s just link in directly right here, and then for the rest of these, we can sort of take the same approach, and just link these indirectly. I’m leaving a space in between these. Notice that, and I’ll explain why when we get to the end of this exercise.
Now this part gets a little bit annoying, because what you have to do is copy this down, except in Excel, you’re going to run into issues doing this, because essentially, we’re reversing the order here. To my knowledge there’s not a built-in function or faster way to do this, so this is a little bit tedious, but luckily we don’t have to if for too much data here.
So know for the actual data, so how are we going to pull this in? Where are we going to this from? Well, actually it’s pretty simple. So what we can do, and I’m going to enter a cell here. We’re technically overwriting this text label a little bit, but that’s okay.
What I’m going to do is just go back here, ‘CTRL + page up’, ‘CTRL + page down’ to move back and forth between these pages and just link directly here. We have our minimum multiple up through our maximum multiple. We’re going to start with the DCF, since that’s the one on top. So we have that and we can copy this over.
And technically, we should be color coating this green. To be honest it doesn’t make a huge difference on this particular page, so I’m not going to pay too much attention to it. Now for the others let’s pull in these. So we’re going to start from the very bottom of this table, and we want to get the P/E minimum multiple from right here, copy this over, so we have that.
And then what we can do is continue to do this. What I’m going to do here is actually just select the whole things, ‘CTRL + C’, and then ‘CTRL + V’. Now you might be wondering, “Okay, wait a minute, what did you just do, because we don’t have the correct data now? We have 21 and it should be going to 19 here, the row above not this one.”
So what did I do? Well, really what I’m going to do here is just do a simple search and replace, find and replace, really. So I’m going to highlight this whole row, look for 21, and replace it with 19, go to replace all, and then keep doing this on the way down, so 22, 18 and replace all. Keep doing this, so 23, 17.
Now you might be asking yourself, “Wait a minute, isn’t there a smarter way to do this? Isn’t there some kind of TRANSPOSE function, or something else like that, that would save us a lot of time here?”
And the short answer is there may be other ways to do it, but there’s no actual really, simple way to know it that I know of. So you could potentially write some type of TRANSPOSE function, or flip these around, or maybe copy and paste the values and get rid of your direct links here.
So those are all potentially possible. It really just depends on how much effort you want to put into this. For this dataset, personally, if it only takes two minutes to do this, it really doesn’t matter to me, and I would rather just do it like this, and keep it relatively simple. And also keep in mind that since these are direct links, it’s not really the end of the world.
We only have to do this once, and then we can keep updating it, and these will update appropriately. So we have these, and what I could do here to make this a little bit better, is I could label these, so min 25th, median, 75th, max. So you think that this is maybe all we have to do but you’d be wrong, because what we actually have to do now is the following.
We have to create points out of all these and then calculate the distance between them. So here’s how we do that. What I can do here, I’m going to copy these over, ‘CTRL + C’, ‘CTRL + V’, and I’m going to label this as min point, 25th point, median point, 75th point, and max point.
So what we want to do here is for the minimum we want to start out right here. This is going to tell Excel that the first bar here for example, is going to go from zero dollars to $63.27. So that’s really going to be the end of the first segment in this chart.
And for the rest of them what we want to do is take the 25th percentile and then subtract the minimum. So what this is telling Excel to do in graphing terms is that the first segment of our chart will go from zero to $63.27. The next segment will start at $63.27 and go $13.22 to the left, to the right rather.
So we can just keep doing this and copying this across, and then let’s go and copy this down, so ‘SHFT + the arrow keys’, ‘ALT + ESF’. We have that, and formatting here is off for some reason. This is probably, because I tried to preformat this, but it didn’t quite work. So let’s just ‘CTRL + C’, ‘ALT + EST’, copy this over.
And then technically on all these, these should all green links so ‘ALT + HFC’. And we should change the color to green, because these are direct links to another works sheet. So we have that. Now with all this in place, let’s turn our attention to the graph. So I’ll right-click on this, and then go to select data, and then for the chart data range, let’s go down and select all of this right here and then select one extra row.
This extra row is so that we can apply a label here, and then we also have this row in the middle, this extra space, so we can apply a label to the DCF output right here. Then we’ll enter a comma, and then what we want to do is go over here, go to MIN point up through MAX point, and have all those. So we can now see our chart which is far too colorful right now, so we’re going to have to change this, but you can see how the basic formatting is better than you’d have expect.
It’s reasonably close. We just need to enlarge the chart and change around a few things here. So what are we going to do in this case? Well, first things first, we want to change around on the series. Now this first series I’m going to enter a blank, because we don’t want anything there. Series two, I’m going to say min to 25th. Series three, I’m going to say 25th to median. Series four, I’m going to say median to 75th, and then then series five, I’m going to say 75th to max.
So we have all those in place, and then now what we want to do is go in start and applying some formatting to the graph itself. So let’s just go over here, let’s just go to page break view, ‘ALT + WI’, and just see how we are doing in space. So we can clearly afford to use up some more space here. So what I’m going to do actually, is just move over some of this stuff, also move it down perhaps.
We have that, and then let’s make this chart a little bit bigger. We have that and let’s go back to normal view. Okay, so what are we going to do for the formatting? So the first thing to do here is that we want to make these parts, at least this first part right here we want to make this invisible. The reason is that we’re not actually showing a valuation starting at zero dollars per share up through the minimum point.
We really want this to start exactly at the minimum point. Now before we do that actually, I also want to change the colors a little bit, so I’m going to go to design, and change colors. In other versions, you may have to go a layout or design, the layout or design tabs in this menu. So let’s go to change colors and change it to monochromatic.
So what are we going to do here? Well, as I said, the first thing to change this, right-click, go to format data series. And then we’re going to make this no fill and we also want to make sure that there are no borders, so I’m going to say no line for border.
Again, in other versions of Excel this will appear in a dialogue box rather than exactly what we have here. So we have that and now that’s effective. Okay, so it looks like the border didn’t disappear, so let’s go back, and try this again, so we’re going to say no line and now that’s gone.
And then for all these others, so essentially what we want to do is for the ones more on the outskirts, so for the minimum to 25th percentile, and then for the 75th percentile to the maximum, we want both of these to appear in a very similar style. So I’m going to right-click, go to format data series, and then go to this fill icon.
We still want no fill, but we want a border. So I’m going to change the border color to black. We basically just want that to indicate that that’s a potential valuation of this company, a potential implied value per share.
But we don’t have a lot of faith on it, because it’s so far beyond the 25th percentile to the 75th percentile range. Same thing applies in this other one right here. So format data series and let’s go in, change it to no fill, and then for the border, solid line and black there. And then for these others, so what’s change this one and change the border to a solid line. We have that and then same thing here, let’s change the border to a solid line.
Okay, so that is in place and that’s looking actually fairly good for the most part. Let’s just go in and check our source data and exactly what where we’re linking this to. Okay, so we have to fix one small thing, which is that this is not going down far enough.
Remember I said that we need to leave an extra space at the end, so we can label this properly? So we’ll just add 37 to that, make it 37 rather, so there we have that. Now in terms of labels and other things here, we generally do not label any of these bar graphs. It’s usually pretty easy to tell what they are just from the axis at the bottom.
Similarly, we’re not really going to give these axes titles, because it’s obvious what they are. We already know these are valuation multiples, and that based on these multiples, and applying them to Wal-Mart’s figures, this is what their implied valuation range is.
However, we will do a couple of other things. First off, let’s format these numbers properly. We don’t like to have a dollars sign, and then a dash right there. So we’ll go to format access, and then go to numbers, and we can change this around a bit. What I’m going to do actually is just change this to a custom format and say ‘0.00’. And now that fixes it and ensures that we always have something there, even if it’s completely blank.
And then for the rest of this, so we really don’t have to format these per se, but we do have to add labels. So if I go to ‘ALT + N’ for insert, and then if I go to X for text box, I can draw a text box right here, and I’m going to label this first one Public Company Comparables, in slightly larger font. Select that whole thing, change the font to blue, and make it bold, and we could make this a darker blue, it doesn’t really matter.
So let’s move that over. I don’t believe there’s a way to automatically align this text label with labels right here, although it would be convenient if there were. Let’s copy and paste this again and now let’s just label this one discounted cash flow analysis. So we have that in place, and we’re getting close to the end here.
What do we still have to do? Let’s change the chart title and say implied valuation of Wal-Mart or we could just title it Wal-Mart’s Valuation – Range of Implied per Share Values to makes it sound more official, so we have that. And really the last thing to do here is to add in the legend.
So for the legend, let’s go to design, and then add chart element. So technically ‘ALT + JC’, and then A for add chart element. But as I said before, I don’t even use keyboard shortcuts myself for most graphs, because you only insert them and change them around once or twice maybe.
So they’re not really like inserting rows and columns, or anything else like that which we constantly doing it. And again, in Excel 2007-2010, and possibly other versions, you’re not going to see this. You’re going to have to go to the layout menu here instead. ‘ALT + JA’, to go to the layout menu, and you’ll have to access it like that.
For the legend, let’s insert it. Where should we put this legend? It doesn’t really make too much sense at the top. Maybe at the left in the bottom, in this case it doesn’t make a lot of sense. It probably looks best on the right, for this type of graph. So we have that. Now to change these, right now these are just series one through five.
That’s not really ideal, so let’s right-click, go to select data, and then series one we’re going to leave that blank and series two we’re going to change to min to 25th, to accurately reflect what that range is. This next one we’re going to change to 25th to median, and then this next one we’re going to change to median to 75th, then this last one we’re going to change to 75th to max. So we have that.
And then one last thing we can do is just change the font color on this. So I can actually just go to ‘ALT + HFC’ and make this white, so it disappears effectively, or just delete this part of the legend. In any case, now we are pretty much done, and this is all you have to do to create a football field graph in Excel.
Now you could nitpick, and go in and change some other things here. For example, we are missing a horizontal line at the bottom for some reason. It’s unclear why that is, so if we go in and see that we have the axes here and we have a lot of other things.
But we are still missing that for some reason, so if you wanted to you could go in and format, go to format chart area, and you could go try to change around borders to do this. I’m not going to bother with it, because the truth is that whenever you paste this into PowerPoint, you’re going to end up formatting it anyway, and we cover a lot of that in the separate course on PowerPoint; PowerPoint Pro, where we go through and show you examples of this, and how to paste this into Excel.
But for now we’re done, and you should have now a much better idea of how you actually setup a graph like this in Excel, to look at different methodologies, and compare what they say about Wal-Mart’s implied value. Now for the actual meaning of this, this really gets into the financial modeling courses, so I’m not going to go into detail.
But essentially our conclusion from this graph would be that, if anything Wal-Mart is probably valued about correctly right now, perhaps a little bit undervalued. Their share prices are around $73, so their share price would be around here on the graph, which is in roughly the 25th to median of most of these ranges.
So a little bit undervalued perhaps. The DCF gives values that are significantly higher. So a little bit undervalued, but all together it’s actually quite amazing how close all these methodologies are to each other. Now in a real analysis we would also include other methodologies. We’d have precedent transactions.
We might have others DCF variations, such as net asset value or liquidation analysis, or future share price analysis or lots of other things here. But these are the basics, and these are the ones that you’re going to see the most often, in this type of analysis. Now for your exercise here I went back and forth on what to give you for your exercise.
But the truth is what we just went through is what I would actually give you as an exercise, if you want to practice it yourself. So if you want to practice this yourself download the before file here, and go through everything that we just went through.
Check your work and if you get stuck, just go back and start early on in this video, where we started going through it, and check your work against everything that we’re doing. I’m not going through it again here, because it’s just repetitive. We’ve already done it once and you can check your work like that, so that’s really the best way to practice this.
Take the data that we started with over here, go over to our valuation graph, and go in and try and make your own. So that’s what I would say for your exercise. Now just to recap this entire lesson, we started off by going through what a football field graph is.
Why we use it and how exactly we use it. The key insight, as I had mentioned, is that you need to include more than just the share prices. You need the distance, so that you can actually draw these segments in the bar chart. It is not that difficult to set this up, because it’s really just a stacked bar chart.
But some of the formatting is tricky. It’s tricky to remember all this stuff about including the distance between different points. So it’s tricky to remember all the details but the basic concept is not really that difficult. It’s just really a standard stacked bar chart.
So that’s it for our lesson on how to create the football field graph. Coming up in the next two lessons we’re going to be looking first at how to create a price volume graph in Excel for several companies. And then after that we’re going to move into sort of a separate topic and learn how to create a waterfall chart that shows you how to go from EBITDA, or revenue or profit, or any other metric in one year to the next year or to the years beyond that, and exactly how you move from one level to the next level, when you’re analyzing and valuating a company.
Files & Resources
- Lesson Transcript
- Project Diamond (Scroll to last page)
- Continental Minerals (See page 28)
- Internet Brands (See page 21)
- Swift Transportation - Goldman Sachs (See 3rd to last page)
- Creating the Football Field Valuation Graph (Walmart) - Before
- Creating the Football Field Valuation Graph (Walmart) - After
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