Valuation issues


Closely held companies can be valued basically by three methods—discounted income approach, comparative analysis, and capitalized earnings. In the case of high probability of bankruptcy, the estimation of liquidation value is the best estimate of valuation of distressed firms. The life cycle of a firm is also a determinant of negative earnings for firms. Cyclical firms are subject to significant swings in profitability. Cyclical companies can be valued using modified discounted cash flow approach involving scenario analysis. The earnings of the cyclical firms must be normalized for the economic cycle covering 5 or 10 years. In the life cycle stage of firms, startup firms highlight the initial stage of the life cycle ...

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