Concepts of Business Valuation – Critical Review of the Discounted Cash Flow (Dcf) Analysis and Its Applicability in Today’s Business World

6817 Words Jul 18th, 2013 28 Pages
Concepts of business valuation – Critical review of the Discounted Cash Flow (DCF) analysis and its applicability in today’s business world
SEMINAR PAPER

Table of contents page 1. Introduction...............................................................................................................3 1.1 1.2 2. The importance of business valuation ..................................................................3 Key indicators covered in this seminar paper .......................................................4

The Discounted Cash Flow Analysis .......................................................................4 2.1 2.2 2.3 2.4 Foundational principles
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While there are many stakeholders who care about the financial situation of associated companies, like suppliers, customers, or creditors, the main addressees of business valuation are strategic investors who want to buy a significant stake in a company, as well as companies in the same industry that consider merging with another firm in order to push forward vertical or horizontal integration.1 And as a matter of fact, business valuation is by far not an easy task. There are hundreds of possible factors adding to the equation when it comes to determining the value of a business.2 Actually, just knowing the current value3 of an entire corporation, a factory or a certain department within an existing enterprise, usually does for itself not help much. Rather it is actually very uncommon that the current value of a business equals the price that’s paid by investors.4 The purchase price for a company is largely dependent on influences like the economic environment in general (boom or crisis), the demand for one single enterprise or its products5, the situation of the current shareholders6 etc. Other factors which can result in a difference between the value of a company and the price paid are for example the qualification of the existing management, the extent to which the company is seen

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