Finance for Managers

10

Valuation Concepts

Evaluating Opportunity

Key Topics Covered in This Chapter

• Asset-based valuation methods
• Earnings-based valuation methods
• Discounted cash flow approach to valuation

WHETHER YOU ARE buying or selling a global corporation, an operating division, a local restaurant, or a share of stock, the question, “What is its value?” outweighs most others, and for good reason. The rate of return from a good company or a good stock is likely to be disappointing if purchased at too high of a price. Likewise, underestimating the value of an entity in a sales transaction can leave plenty of the owners’ money on the table.

Valuing an ongoing business—large or small—is neither easy nor exact. The field of finance, however, has developed methods ...