Does anyone have resources they can share to establish a valuation?

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August 15, 2024

by a searcher from Northern Illinois University in Chicago, IL, USA

Does anyone have resources they can share to establish a valuation? Specifically, when you expect volatility in future returns?

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Reply by a searcher
from The University of Chicago in Nashville, TN, USA
For the initial valuation I rely heavily on the BVR data since I look at a lot of different industries. I normally grab around###-###-#### recent transactions in a +/- 20% of revenue range and look at the median, 25th and 75th percentile for the key ratios. I use that as my starting point before doing a free cash flow analysis to make sure that it still works with my expected financing, capex and IRR requirements.

As far as volatility I always run at least 3 scenarios with a negative, straight line and positive scenario for myself. If you want to come up with a mixed valuation your best bet will likely be some type of probability adjusted expected outcome. Ie. you have a 20% chance of your negative scenario, 70% of your straight line and 10% for the high upside scenario and you weight the expected outcomes against that. While it's possible to run full Monte Carlo scenarios it sounds like a good way to spend a lot of time on a model that isn't any more accurate, we can leave that the big consulting firms of world to sell on nice fancy powerpoint decks to Fortune 500 companies.

Feel free to direct message me if you want to discuss. I'm not selling anything, I'm just another searcher but I find it interesting and have learned a lot from speaking to my peers here.
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Reply by a professional
from Wilfrid Laurier University in Calgary, AB, Canada
At Troy Valuations, we provide expert opinion business valuation reports on the value of your business - for M&A, litigation, tax planning and divorce negotiations.

The resources mentioned above, such as BVR, Pepperdine and DealStats are excellent resources for companies with stable cashflow, but are inadequate when considering the value for businesses anticipating volatile returns, such as startups and early stage companies. These types of companies often face uncertainty and volatility in future cash flows.

For your business in which you are expecting volatile future returns, you should use a Discounted Cash Flow (DCF) methodology. The volatility in the forecast cash flow will be analyzed and returned to present value through the application of a Weighted Average Cost of Capital (WACC). This more robust approach to valuation allows for a nuanced understanding of risk and potential in dynamic market conditions.

I'd be happy to discuss how we can help. Feel free to reach out directly or connect with me here to explore how Troy Valuations can assist in providing a valuation that reflects the true value of your business.
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