afirmvaluethatwasaweightedestimateofagoingconcern
value and a distresssale value.For a distressed firmin a
sectorwheretheaveragefirmishealthy,thisapproachoffers
promise.We canestimate thevalue ofthe distressed firm
usingthecomparablefirmsandconsideritthegoingconcern
value.Forinstance,ifhealthyfirmsinthebusinesstradeat 2
timesrevenues,wewouldmultiplythefirm’srevenuesby 2
toarriveatthegoingconcernvalue.Wecouldthenestimate
the firm value, adjusting for distress:
Theprobabilityofdistressandthedistresssalevaluewould
be estimated just as they were in the prior section. This
approachmakesthemostsensewhenvaluingafirmthatis
distressedinasectorcontainingmostlyhealthyfirms,since
the prior two approaches could not be used here.
In some cases, we may have to use forecasted values for
revenuesandoperatingincometoarriveatthegoingconcern
value,especiallyifcurrentrevenuesandoperatingincomeare
adversely impacted by the overhang of distress.
ILLUSTRATION 17.7: Forward Multiples and Distress
Consider theforecasts of revenues and EBITDA made in
Illustration17.3 forGlobal Crossing.Although thefirm is
losing a substantial amount of money currently, we are
forecastingareturntofinancialhealth.Inyear5,forinstance,
GlobalCrossingisexpectedtohaveanEBITDAof$1,371
million on revenues of $9,139 million. Usingthe average
enterprise value/EBITDA multiple of 7.2 atwhich healthy
telecom firms