David Prosser: So, how much is the company really worth?

Share
Related Topics

The short answer is as much as a buyer is prepared to pay for it. But whether the £418m that News Corp paid for the television production company represented good value is another question.

Still, businesses do not simply pluck numbers out of the air when making an acquisition. Valuing a company is an art as well as a science, but there are some basic principles to follow.

Even quite a young company will have figures showing its past earnings. The price-to-earnings ratio (the value of a business divided by its annual profits) is the most common way in which to calculate a company's worth. Similar companies should trade on similar ratios.

Britain's independent television production sector is not big enough to have seen a string of deals against which to judge the acquisition of Shine. But there is one transaction to which News Corp's angry shareholders might point. Last year, Time Warner took a controlling stake in Shed Media, the producer of Waterloo Road and Supernanny, in a deal that valued the company at £100m. Shed was on target to make a profit of around £12m last year, giving a price-to-earnings multiple of just over eight.

By contrast, Shine made a profit of £5.5m in 2009, the last year for which figures are available. Sales accelerated last year, but even if we charitably say that profits might have hit £10m, the News Corp purchase puts the deal on a price-to-earnings ratio of more than 40. So, a clear case of nepotism? Not necessarily. There may be all sorts of explanations for such discrepancies – different growth prospects, the quality of key staff and a changing economic environment. Still, it will be tough to argue it was cheap.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Business Development Manager

Salary/Rate: £32,000/annum: M&E Global Resources Ltd: Description/Main Duties ...

IT Systems Manager

£40000 - £45000 per annum + pension, healthcare,25 days: Ashdown Group: An est...

Application Support Analyst / Junior SQL Server DBA

£40000 - £45000 per annum: Ashdown Group: An established professional services...

Trainee Recruitment Consultant - Birmingham - Huxley Associates

£18000 - £23000 per annum + Commission: SThree: Huxley Associates are currentl...

Day In a Page

Read Next
 

In Sickness and in Health: It’s been lonely in bed without my sleep soulmate

Rebecca Armstrong
A man shoots at targets depicting a portrait of Russian President Vladimir Putin, in a shooting range in the center of the western Ukrainian city of Lviv  

Why do we stand by and watch Putin?

Ian Birrell
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor