Valuing Companies: An Overview of Analytical Approaches
5 Pages Posted: 14 Jun 2009
Abstract
This technical note provides an overview of a valuation network: multiples, options pricing, specific-asset valuation, and present value. The strengths and philosophies of each approach are discussed in the context of valuing companies. Variations of present-value approaches are also discussed. The purpose of the note is to furnish a conceptual overview rather than to go through the mechanics.
Excerpt
UVA-F-1187
Rev. Jan. 25, 2017
Valuing Companies: An Overview of Analytical Approaches
Practitioners have devised numerous frameworks and analytic techniques to value companies. Such valuation approaches are also used to value portions of existing companies (e.g., divisions) or investment proposals (e.g., to build a new facility). Each approach has its strengths and weaknesses and a combination of approaches often provides insights not obtainable from a single technique. This note highlights major approaches to valuation.
One can partition valuation approaches into four groups as shown in Table 1. Within each category there are many variations, but each category is motivated by a different philosophy of valuation.
Table 1. Valuation approaches.
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Keywords: acquisitions, present value, valuation
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