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80 Common Errors in Company Valuation

27 Pages Posted: 13 May 2004  

Pablo Fernandez

University of Navarra - IESE Business School

Date Written: May 12, 2004

Abstract

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.

Keywords: Company valuation, valuation errors, valuation

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, 80 Common Errors in Company Valuation (May 12, 2004). Available at SSRN: https://ssrn.com/abstract=545546 or http://dx.doi.org/10.2139/ssrn.545546

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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