Business Valuation
Valuing a Business by Discounted Cash Flow
Investors routinely buy and sell shares of common stock. Companies frequently buy and sell entire businesses. In 2001, for example, when Diageo sold its Pillsbury operation to General Mills for $10.4 billion, you can be sure that both companies burned a lot of midnight oil to make sure that the deal was fairly priced.
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Valuing Financial Service Firms
Banks, insurance companies and other financial service firms pose particular challenges for an analyst attempting to value them for two reasons. The first is the nature of their businesses makes it difficult to define both debt and reinvestment, making the estimation of cash flows much more difficult. The other is that they tend to be heavily regulated and the effects of regulatory requirements on value have to be considered.
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The Cost of Equity and Capital
Firms raise money from both equity investors and lenders to fund investments. Both groups of investors make their investments expecting to make a return. the expected return for equity investors would include a premium for the equity risk in the investment. We label this expected return the cost of equity. Read more»
Valuing Firms with Negative Earnings
In most of the valuations, firms that have positive earnings are analysed. In this article, we consider a subset of firms with negative earnings or abnormally low earnings that we categorize as troubled firms. We begin by looking at why firms have negative earnings in the first place and look at the ways that valuation has to be adapted to reflect these underlying reasons.
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Valuing young or start-up firms
Many of the firms that we take into consideration in our articles are publicly traded firms with established operations. But what about young firms that have just started operations? There are many analysts who argue that these firms cannot be valued because they have no history and, in some cases, no products or services to sell. In this chapter, we will present a dissenting point of view. Read more»
