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Corporate Valuation by Laura Zanetti, Gianfranco Gianfrate, Mario Massari

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Chapter 2Business Forecasting for Valuation

2.1 INTRODUCTION

The business plan is the document that represents both the management strategies and the results that management expects from their implementation. As a consequence, analysts carrying out the valuation should always include the business plan in their valuation report. When the business plan is provided by the company itself (or by its advisors), a careful assessment—from both a qualitative and quantitative point of view—is a phase of paramount importance within the valuation process. Bearing this in mind, we devote this chapter to illustrate, by means of several examples, three aspects:

  • The key phases of any business plan preparation
  • The structure of the business plan as a function of the nature and the features of the activities carried out by the company
  • The main practical issues arising when preparing or assessing a business plan.

2.2 KEY PHASES OF THE BUSINESS PLAN ELABORATION

Business plan preparation consists of several interrelated phases:

  • Thorough analysis of the company features, of the market(s) it competes in, of its positioning within such market(s), and of the past performance achieved
  • Definition of the precise competitive strategies that the management is expected to pursue the future
  • Definition of the actions that need to be implemented to pursue those competitive strategies
  • Definition of the quantitative assumptions underpinning the forecast income statement, balance sheet, and cash flow statement ...

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