Valuation Issues

When companies enter multiple businesses and many markets, we will confront the issues in the inputs that we use to value a company. We can break down the problems we face by looking at each category of inputs—first in discounted cash flow (DCF) models, and then in relative valuation.

Intrinsic (DCF) Valuation

The intrinsic or discounted cash flow value of a multibusiness company is a function of the same variables that determine the value of any company—the cash flows from existing assets, the expected growth rate and value created by new assets, the risk in these assets (as captured by a discount rate), and the period of time before the firm becomes a stable-growth firm:

  • Existing assets: Using aggregate earnings to value ...

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