Corporate Valuation

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 ...