Business Valuation Methods
The cardinal rule of business valuation is, that the value of something cannot stated in an abstract form; all that can be stated is the value of a thing in a particular place, at a particular time, in particular circumstances. Valuation of the target requires valuation of the totality of the incremental cash flows and earnings. Valuation of a target is based on expectations of both the magnitude and the timing of realization of the anticipated benefits. Where, these benefits are difficult to forecast, the valuation of the target is not precise. This exposes the bidder to valuation risk. The degree of this risk depends on the quality of information available to the bidder, which, in turn, depends upon whether the target is a private or a public company, whether the bid is hostile or friendly, the time spent in preparing the bid and the pre-acquisition audit of the target. Continue reading