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How does one value a company? While at a broad level one may be able to understand why a company may be worth a certain amount to an investor or a buyer, it is not always possible to understand why someone is willing to pay a certain amount for a business.
A business worth a significant amount at a certain point in time may suddenly lose much of its value a very short while later.
This is what happened in many companies commonly referred to as ‘dot-com companies,’ which were valued at amounts which may seem absurd now…. in hindsight.
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AGENDA 52 Market based 43 Limitations of DCF 36 DCF 35 Earnings capitalisation 33 Income based 32 Liquidation 31 Replacement 28 Intangible assets 24 Goodwill 18 Book value 16 Cost based 13 Valuation methods 6 Background Slide no. Topic
AGENDA 102 Privatisation 97 Cross border transactions 94 Companies in distress 91 Cyclic companies 84 M & A 75 Multi business Special situations 67 Valuation process 63 What value depends on Slide no. Topic
Historically, many M&As have not done as well as expected. Many times this has been attributed to valuation being too high. To minimise this risk of over valuation, a proper due diligence review (DDR) exercise is to be done, with one of the mandates for this being careful review of the value drivers and the business proposition.
Valuation of company that is based on valuation of individual business units provides deeper insight
Valuation of individual business units also helps understand whether the company is more valuable as a whole or in parts and to understand where the value is (eg. in some units or in the company as a whole)