Anni Albers. Anni Albers Untitled Wallhanging, 1924 Cotton and silk, (66 13/16 x 39 1/2 in.)
Seattle University – Albers School of Business and Economics Blueprint for Reliable Business...
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Seattle University – Albers School of Business and Economics Blueprint for Reliable Business Valuation 1.Meaning of reliable valuation 2.Necessary conditions 3.Background: research and practice 4.Guidelines for reliability 5.The model 6.Conclusion
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Transcript of Seattle University – Albers School of Business and Economics Blueprint for Reliable Business...
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Blueprint for Reliable Business Valuation1.Meaning of reliable valuation
2.Necessary conditions
3.Background: research and practice
4.Guidelines for reliability
5.The model
6.Conclusion
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1. Meaning of reliable valuation
guarantee internal validity
… but not necessarily external!
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2. Necessary conditions
1.TA = D + Efair values; under RIM and DCF
2.RIM value = DCF value for TA, D, E
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3. Background
Research has claimed RIM better than DCF, or vice-versaReasons for errors: - missing cash- incorrect TV calculation- wrong WACC
Court case issues:- poor input; failure to use relevant data; flaws in theory applied
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4. Guidelines for reliability (Logical)
L1: forecast ALL statements
L2: allow SS to obtain before TV calc.
L3: compute wacc iteratively
L4: compute value under RIM and DCF for every item
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4. Guidelines for reliability (Interface)
U1: include history
U2: generate diagnostics: model structure; input; F/S; valuation
U3: do automatic simulations with predefined parameters
U4: do stages of growth
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5. The model
VAPT assumes:
indefinite horizon
non-financial intermediary
non-cyclical
negligible bankruptcy risk
Demonstration of model with emphasis on errors and diagnostic messages
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6. Summing up…
To achieve reliable valuation build a model that satisfies guidelines L1-L4 and U1-U4.
Check diagnostic messages before making recommendations.
Run sensitivity analysis.
Compare forecasts with market’s.
Big differences wrt market suggests possibility of serious mistakes.
