Chapter 10: Valuation

After understanding the three-statement model and ratio analysis in Chapter 9, Ratio Analysis, we can now proceed with the valuation of the company using the absolute method (Discounted Cash Flow (DCF)) and the relative method (comparatives).

Whatever the reason for establishing and running a company, you will at some stage want to know the value of the business. This could be to identify weaknesses, determine whether the business is growing, stagnant, or deteriorating, apply for a loan, attract investors, establish a reference point as a platform for driving future growth, or prepare for divesting from the company. There are several methods of valuation, but the three main methods will be discussed in this chapter.

By the end of the chapter, you will know the differences between the two valuation methods. You will understand the elements that make up the DCF method of valuation and how they are calculated.

The following topics are covered in this chapter...