120 Errors in Company Valuations (120 Errores en Valoraciones de Empresas)

Abstract:     
This paper contains a collection and classification of 120 errors seen in company valuations performed by financial analysts, investment banks and financial consultants. The author had access to most of the valuations referred to in this paper in his capacity as a consultant in company acquisitions, sales, mergers, and arbitrage processes.

We classify the errors in seven main categories: 1) Errors in the discount rate calculation and concerning the riskiness of the company; 2) Errors when calculating or forecasting the expected cash flows; 3) Errors in the calculation of the residual value; 4) Inconsistencies and conceptual errors; 5) Errors when interpreting the valuation; 6) Errors when interpreting financial reports; and 7) Organizational errors.

Note: Downloadable document is in Spanish.

Keywords: company valuation, equity premium, valuation errors, valoracion de empresas

JEL Classifications: G12, G31, M21

Working Paper Series