75 Common and Uncommon Errors in Company Valuation

Abstract

This paper contains a collection and a classification of 75 errors seen in company valuations performed by financial analysts, investment banks and financial consultants. The author had access to most of the valuations that are referred to in this paper when consulting in purchases, sales and mergers of companies, and in arbitrage processes. Some valuations are public reports of financial analysts.

We classify the errors in six main categories: 1. Errors on the discount rate calculation and about 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. Organizational errors

Keywords: valuation, company valuation, valuation errors

JEL Classification: G12, G31, M21