Member Since: 12th Aug 2005
25th Jan 2006
But isn't this only part of the story?
I was lucky enough to spend some time, some years ago, working within the Business Valuations department of a Big 5. The way I was taught to approach a "normal" business valuation (i.e. not involving intellectual property/options etc. etc.) included, but was certainly not limited to, the multiple methods described above.
I think an article pitched at this level should mention that it is wise to apply several different methodologies and compare the results - generally speaking, if said results are consistent, you might be more comfortable that your valuation stands up. If they are wildly disparate you need to look more closely.
For example, you might use the multiples approach above and come to a conclusion on a range of value... but what if this is not supported by the NPV of future cash flows? What if the book value of net assets exceeds the multiples conclusion?
NB. Multiples can also, with a great deal of care and experience, be applied to P&L results other than the bottom line.