80 Common Errors in Company Valuation
University of Navarra - IESE Business School
May 12, 2004
This paper contains a collection and classification of 80 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 and mergers, and arbitrage processes. Some of the errors are taken from published reports by financial analysts.
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.
Number of Pages in PDF File: 27
Keywords: Company valuation, valuation errors, valuation
JEL Classification: G12, G31, M21
Date posted: May 13, 2004