Building Financial Models with Microsoft® Excel®: A Guide for Business Professionals, Second Edition

Chapter 13. Valuation

This chapter covers the topic of valuation, or the practice of placing a value on a business. Valuation is a vast and complex topic—many books have been written on this subject alone. My goal in this chapter is to introduce several of the most commonly used valuation approaches, including discounted cash flow, public company comparables, and mergers and acquisitions comparables.

Beyond the coverage of specific valuation methodologies, a core concept of valuation is this: The best valuation approach is often a combination of approaches. In other words, it is often best to use several valuation techniques to assess the value of a business. In so doing, it is possible to triangulate on the value of a business by weighting various valuation approaches. I address the valuation of Napavale in this chapter by triangulating on the value of Napavale—by using and weighing several valuation methodologies.

I cover the discounted cash flow, public company comparables, and mergers and acquisitions comparables valuation methodologies separately and then discuss the concept of triangulation and weighing these various approaches at the end of the chapter.

DISCOUNTED CASH FLOW

The discounted cash flow (DCF) valuation approach is widely used and is covered in many undergraduate and graduate-level finance classes in the United States. In essence, the general premise of the DCF approach is this: The value of a business is equal to the present value of the cash flows generated by that ...