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

Current Practices

While changes in expectations about real economic growth, inflation, and currency movements clearly change valuations, the way in which these expectations are brought into valuation currently is surprisingly haphazard. In fact, analysts practice everything from benign neglect, where they essentially ignore the macroeconomic environment, to bringing strong and idiosyncratic views about future macroeconomic developments to every valuation they do.

• Implicit assumptions: Analysts often make no explicit assumptions about economic growth or inflation when doing valuations. They justify this neglect by arguing that their job is assessing a company’s value and not making macroeconomic forecasts. While this argument has some merit, ...