119 Common Errors in Company Valuations

27 Pages Posted: 30 Oct 2007 Last revised: 2 May 2023

See all articles by Pablo Fernandez

Pablo Fernandez

IESE Business School

Andrada Bilan

University of Navarra - IESE Business School

Date Written: April 29, 2023

Abstract

This paper contains a collection and classification of 119 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 six 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; and 6) Organizational errors.

La versión española de este artículo se puede encontrar en: http://ssrn.com/abstract=962961.

Keywords: company valuation, valuation errors, valuation, historical beta, CAPM

JEL Classification: G12, G29, G31, M21

Suggested Citation

Fernandez, Pablo and Bilan, Andrada, 119 Common Errors in Company Valuations (April 29, 2023). IESE Business School Working Paper No. 714, Available at SSRN: https://ssrn.com/abstract=1025424 or http://dx.doi.org/10.2139/ssrn.1025424

Pablo Fernandez (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

HOME PAGE: http://web.iese.edu/PabloFernandez/

Andrada Bilan

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

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