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

Conclusion

Companies that spread their tentacles across multiple businesses and many parts of the globe are difficult to value, because their cash flows from each business or region can have very different risk and growth characteristics. This chapter looked at two ways we can approach the valuation of these. The first is to value the company as a whole, using the weighted averages of risk parameters to estimate discount rates, which we then use to discount consolidated cash flows for the firm. The dangers here are that the weights will change over time, and as they do, so will the firm’s fundamentals. The second way is to value the cash flow streams separately, using different risk measures and growth rates for each stream. Thus, emerging-market ...