The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses, Second Edition

Conclusion

The value of every company is affected by what we expect to happen to the overall economy, expected inflation, and exchange rates in the future. Given this centrality, it is surprising how haphazard analysts are when it comes to making reasonable assumptions about these variables. Some make implicit assumptions through the company-specific numbers they use and are unable or unwilling to make these assumptions explicit. Others build all their forecasts on last year’s numbers, thus building whatever happened last year with the real economy, inflation, and exchange rates into their future estimates and value. Still others make strong assumptions about the future path of macroeconomic variables, and through these assumptions have large ...