96 Common Errors in Company Valuations
29 Pages Posted: 7 Apr 2006
Date Written: April 4, 2006
This paper contains a collection and classification of 96 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.
Keywords: company valuation, valuation errors, valuation
JEL Classification: G12, G31, M21
Suggested Citation: Suggested Citation