Corporate Valuation Modeling: A Step-by-Step Guide

CHAPTER 2

Dates and Timing

Consider a world without time and how that would impact a financial analysis. It would greatly limit the methodologies we could use to value a company and simultaneously limit the value that could be derived for the firm. At the most extreme level, all we would have would be the current financial statements. Determining the best investment would be a relative analysis involving the highest multiple of earnings with consideration to a strong corporate structure at that given moment. Issues of revenue potential, future cost factors, operating expenditure plans, and financing strategies would not exist. In fact, most of us would be out of jobs since we get paid to project and manage the uncertainties caused by time.

A slightly more advanced level of analysis would give credit to the fact that items on the balance sheet can grow in value either by their operating potential or just by inflation. This still ignores many components of a fully operational firm. The more complex analysis that comes out of completely integrating all factors of time is a discounted cash flow methodology where we make projections of many facets of the firm’s structure and operations.

Within the complex framework of a discounted cash flow analysis, multiple time-related issues arise. Andy Warhol once said, “They say time changes things, but you actually have to change them yourself.” I rarely quote celebrities, but this epitomizes the issues we deal with in regard to time and discounted ...