Corporate Valuation Modeling: A Step-by-Step Guide

CHAPTER 1

Introduction

Corporate valuation modeling consistently proves challenging because it requires a thorough understanding of two bodies of thought that demand disparate skill sets: finance and technology. On the finance side, we must understand fundamental topics such as time value of money, growth rates, debt calculations, and other subjects that blend accounting, economics, and mathematics. In particular, accounting is a subject that corporate valuation analysts must be well versed in because generally a subject that corporate valuation analysts must be well versed in because generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS) need to be followed to make sure analyses are consistent. On the technology side, we must select a program or programming language to utilize and understand the technical functionality of that program well. In many cases, the program is Excel, which requires knowledge of a number of program-specific functions and techniques in order to transfer the financial concepts to an orderly, dynamic analysis. Prior to jumping right to the construction process, we will take a step back and examine the overall process.

OVERVIEW OF THE CORPORATE VALUATION PROCESS

The corporate valuation analysis process itself is quite complex with many moving parts that are intricate to stitch together. Taking a reverse approach, that is, starting with the firm value and tracing back its calculations and components, is a ...