You are evaluating a high-growth software infrastructure business that is still reporting negative EBIT because it is investing heavily in sales capacity and product development. The CFO wants a valuation view for an internal strategic review, but public comps are noisy and current earnings are not meaningful. You have a 5-year operating forecast, a discount rate, and a terminal growth assumption. Assume USD reporting and that stock-based compensation is already included in operating expenses.
| Metric | Value |
|---|---|
| Current revenue | $120,000,000 |
| Revenue growth next 5 years | 30%, 25%, 20%, 15%, 10% |
| EBIT margin next 5 years | -8%, -2%, 5%, 10%, 14% |
| Tax rate once profitable | 25% |
| D&A as % of revenue | 4% |
| Capex as % of revenue | 6% |
| Increase in NWC as % of incremental revenue | 8% |
| WACC | 11% |
| Terminal growth rate | 3% |
| Net debt | $40,000,000 |
How would you value the business despite negative current earnings, and what enterprise value and equity value would you present based on these assumptions? What does the sensitivity tell you about the main valuation risk?