75 Common and Uncommon Errors in Company Valuation

28 Pages Posted: 24 Jun 2003

See all articles by Pablo Fernandez

Pablo Fernandez

University of Navarra - IESE Business School

Date Written: May 27, 2003

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

Suggested Citation

Fernandez, Pablo, 75 Common and Uncommon Errors in Company Valuation (May 27, 2003). Available at SSRN: https://ssrn.com/abstract=411600 or http://dx.doi.org/10.2139/ssrn.411600

Pablo Fernandez (Contact Author)

University of Navarra - IESE Business School ( email )

Camino del Cerro del Aguila 3
28023 Madrid
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

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

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