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Raising Entrepreneurial Capital, 2nd Edition by Suzanne M. Erickson, John B. Vinturella

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5

Valuation

Survey of Methods

John Vinturella and Suzanne Erickson

Introduction: Valuation Methodologies

Valuation is a critical issue in all of finance, including entrepreneurial finance. Sound company valuation is used for planning, for assessing the impact of different strategies on firm value, in estate planning for private firms, in litigation, in establishing the value of an ownership share, and in determining the value of a business for sale. We will discuss five approaches to firm valuation that are commonly used in practice:

1. Asset-based valuation

2. Market comparables

3. Capitalization of earnings

4. Valuation based on excess earnings

5. Discounted cash flow (DCF) valuation or present value of the firm’s free cash flows

Finance theory ...

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