Valuation Issues
The shared characteristics of growth firms—dynamic financials, a mix of public and private equity, disconnects between market value and operating data, a dependence on equity funding, and a short and volatile market history—have consequences for both intrinsic and relative valuations.
Intrinsic (DCF) Valuation
If a company’s intrinsic value comes from its cash flows and risk characteristics, we will run into problems while valuing growth companies that can be traced back to where they are in the life cycle. This section breaks down the valuation issues specific to growth companies by the key components of intrinsic value—existing asset value, growth asset value, risk (discount rates), terminal value, and equity value per share. ...
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