Thursday, 3 November 2016


To get ahead, be creative.

No matter what a client desired, a good banker could always tweak the numbers a bit and could produce the numbers:

  • a higher selling price,
  • a lower purchase price, 
  • stronger margins,
  • lower capital costs.

Valuation Basics

Time Value of Money
Present Value   

Methods of Valuation

Valuation is far more of an art than a science.

"The value of that work is $1 million, because that is what the buyer and seller agreed on."

With detailed valuation models, the key factors that drove a company in the past, along with those which will continue to drive it in the future, can be examined.

Both sides are able to form a better picture of the potential as well as the risks associated with this company.

Through this process of dialogue, they hope to be able to build a consensus.  With a little luck, they just might close a sale.

There are numerous uses for valuation.   

A few of the more common ones are:
  • Venture capital
  • Initial public offerings
  • Mergers and acquisitions
  • Leveraged buyouts
  • Estate and tax settlements
  • Divorce settlements
  • Capital raising.
  • Partnerships
  • Restructuring
  • Real estates
  • Joint ventures
  • Project finance.
Even if you have no dealings in these types of transactions and more specifically, no interest in them, it is important to have at least a basic understanding of the underlying principles and techniques of valuation.

Why?   Because so much of what we do and so much of what governs out personal lives is driven by these principles.
  • The simple decision to lease or buy a care is driven by valuation.
  • The decision to own or rent an apartment is driven by valuation.
  • Changes in the stock market that might affect your job are a function of valuation.
It is important that each one of us understand the basics of valuation because we no longer can rely on the experts on Wall Street, in corporate America, and at the big accounting firms.

Ultimately, we all bear some responsibility because we were the ones who failed to educate ourselves.

Various Methods of Valuation
  • Replacement Method
  • Capitalization of Earnings
  • Excess Earnings Method
  • Discounted Cash Flow Valuation
  • Comparable Multiple Valuation
  • Net Present Value
  • Internal Rate of Return

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