Traditional valuation approaches for non-financial businesses focus on the use of multiples or cash flow based analysis. What these techniques assume is a stability and a risk profile that is not found in the more difficult types of business to value. This leads to errors in valuation that traditional valuation tools struggle correct, indeed errors that analysts are sometimes unaware of. Assumptions about risk and profitability need to be adapted when dealing with these types of business and this advanced valuation and modelling course looks at the valuation approaches to be taken to enable participants to value companies and sectors which cannot be valued using traditional valuation techniques.
The first area covered where analysts struggle to value business correctly is at the early growth and start up stage (the Facebook stage), which would cover sectors such as technology, biotechnology and any early funding stage business. Traditional valuation tools struggle to estimate profitability (what size will the eventual market be?) and risk (will the company survive and how does risk change if it does?) The key challenges associated with such companies are discussed, the problems with traditional valuation approaches and the best valuation approach considered. The second area is more mature but rapidly growing companies which, depending on the geographic location, may cover technology, media, telecoms and pharmaceutical sectors. Here risk is again a problem area, but the rate and timing of the peak in growth becomes a key issue (the Apple stage).
Thirdly cyclical and commodity companies are analysed to identify the issues with sectors such as resources, energy and chemicals companies, where analysts seem to become more focused on the ability to forecast the economic than the company and specific approaches to long run commodity prices are analysed ($40 or $100 oil). Finally in the graveyard stage declining companies are considered where traditional valuation approaches become less relevant and a “wind down” approach may be applicable. Here traditional tools again fail to value risk, but where significant money can be made if a company survives. The course covers the best techniques to assess risk in these types of businesses and how option techniques can be applied to valuation.
As well as discussed some of the current issues with traditional cash flow and multiple based valuation approaches the course will cover more advanced valuation approaches such as decisions trees, simulations, scenario analysis and real option valuation. As such the course provides an “analytic toolkit” for anyone looking to value almost any type of non-financial company across a range of sectors and lifecycle stages.
Examples are provided to illustrate each issue.
Participants will be required to bring a laptop to the course.
Overview of valuation approaches
Other valuation issues
Valuing rapid growth companies and sectors
Valuing declining companies and sectors
What Redcliffe’s clients are saying about the course
“Very good case studies and enhanced understanding of the topics covered”