The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses, Second Edition

1. The Dark Side of Valuation

I have always believed that valuation is simple and that practitioners choose to make it complex. The intrinsic value of a cash flow-generation asset is a function of how long you expect it to generate cash flows, as well as how large and predictable these cash flows are. This is the principle that we use in valuing businesses, private as well as public, and in valuing securities issued by these businesses.

Although the fundamentals of valuation are straightforward, the challenges we face in valuing companies shift as firms move through the life cycle. We go from idea businesses, often privately owned, to young growth companies, either public or on the verge of going public, to mature companies, with diverse product ...