Company Valuation Methods. the Most Common Errors in...

Pablo Fernà ¡ndez. IESE Business School Company valuation methods. The most common errors in valuations Company valuation methods. The most common errors in valuationsâˆâ€" Pablo Fernà ¡ndez PricewaterhouseCoopers Professor of Corporate Finance IESE Business School Camino del Cerro del Aguila 3. Telephone 34-91-357 08 09. 28023 Madrid, Spain e-mail: fernandezpa@iese.edu In this paper, we describe the four main groups comprising the most widely used company valuation methods: balance sheet-based methods, income statement-based methods, mixed methods, and cash flow discounting-based methods. The methods that are conceptually â€Å"correct† are those based on cash flow discounting. We will briefly comment on other methods since -even though they†¦show more content†¦Value should not be confused with price, which is the quantity agreed between the seller and the buyer in the sale of a company. This difference in a specific company’s value may be due to a multitude of reasons. For example, a large and technologically highly advanced foreign company wishes to buy a well-known national company in order to gain entry into the local market, using the reputation of the local brand. In this case, the foreign buyer will only value the brand but not the plant, machinery, etc. as it has more advanced assets of its own. However, the seller w ill give a very high value to its material resources, as they are able to The reader interested in methods based on value creation measures can see Fernandez (2002, chapters 1, 13 and 14). The reader interested in valuation using options theory can see Fernandez (2001c). 1 2 Pablo Fernà ¡ndez. IESE Business School Company valuation methods. The most common errors in valuations continue producing. From the buyer’s viewpoint, the basic aim is to determine the maximum value it should be prepared to pay for what the company it wishes to buy is able to contribute. From the seller’s viewpoint, the aim is to ascertain what should be the minimum value at which it should accept the operation. These are the two figures that face each other across the table in a negotiation until a price is finally agreed on, whichShow MoreRelatedAccounting And Financial Methods And Tools1745 Words   |  7 PagesFirm valuation relates to accounting in that it uses a combination of both accounting and financial methods and tools. Some of the accounting tools used includes the valuation of firms’ assets, valuation of a firm’s profit and loss and also the valuation of a firm’s obligations, which are liabilities. 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