09 Nov, 2017
Company Valuation Methods. Basic Stages of a Valuation by Cash Flow Discounting (Part 6)

The basic stages in performing an accurate valuation by cash flow discounting are:
Historic and strategic analysis of the company and the industry
1. Financial analysis
— Evolution of income statements and balance sheets
— Evolution of cash flows generated by the company
— Evolution of the company’s investments
— Evolution of the company’s financing
— Analysis of the financial health
— Analysis of the business’s risk
2. Strategic and competitive analysis
— Evolution of the industry
— Evolution of the company’s competitive position
— Identification of the value chain
— Competitive position of the main competitors
— Identification of the value drivers
Projections of future flows
1. Financial forecasts
— Income statements and balance sheets
— Cash flows generated by the company
— Investments
— Financing
— Terminal value
— Forecast of various scenarios
2. Strategic and competitive forecasts
— Forecast of the industry’s evolution
— Forecast of the company’s competitive position
— Competitive position of the main competitors
3. Consistency of the cash flow forecasts
— Financial consistency between forecasts
— Comparison of forecasts with historic figures
— Consistency of cash flows with the strategic analysis
Determination of the cost (required return) of capital
— For each business unit and for the company as a whole
— Cost of the debt, required return to equity and weighted cost of capital
Net present value of future flows
— Net present value of the flows at their corresponding rate.
— Present value of the terminal value.
— Value of the equity.
Interpretation of the results
— Benchmarking of the value obtained: comparison with similar companies
— Identification of the value creation. Sustainability of the value creation (time horizon)
— Analysis of the value’s sensitivity to changes in the fundamental parameters
— Strategic and competitive justification of the value creation
Read about M&A: Mandate F. A. Q., DD Check List
Our suggestions: 20 Must-Read Books
More about raising capital: Mezzanine financing, Equity financing, Debt financing, Investopedia: What is Private Equity?, What is The Difference Between Private Equity and Venture Capital?
Company Valuation Methods: Part1, Part2, Part3, Part4, Part5, Part6, Part7, Part8
Some strategies of raising capital: Bringing Your Company Public, Exploring Alternative Capital-Raising Strategies, Refinancing and Minority Equity as Partial Exit Strategies, 5 Alternatives To IPOs, How to Raise Capital For a Company in Financial Troubles, 7 Private Equity Strategies, Why Successful Business Owners Sell Out, The Six Types of Successful Acquisitions, Race to Become a Global Player, Refinancing and Minority Equity as Partial Exit Strategies, Guide To Equity Release Or «Cash-Out»