Company Valuation in Mergers and Acquisitions: How Is Discounted Cash Flow Applied by Leading Practitioners?

W. Todd Brotherson

Southern Virginia University

Kenneth M. Eades

University of Virginia – Darden School of Business

Robert S. Harris

University of Virginia – Darden School of Business

Robert C. Higgins

University of Washington – Department of Finance and Business Economics

2014

Journal of Applied Finance (Formerly Financial Practice and Education), Vol. 24, No. 2, pp. 43-51, 2014

Abstract:

Based on interviews with major investment banks, we report how these leading practitioners apply discounted cash flow (DCF) techniques to value business enterprises. We find considerable alignment among the advisors and between practice and academic advice on major themes, including assessments of risk informed by data from financial markets and on the use of comparable company data. Our conversations reveal a complex set of judgments on valuation. While leading practitioners routinely use DCF methods in mergers and acquisitions (M&A) valuations, the application is often far from “routine”; it requires art and judgment in the face of inherently uncertain business forecasts such as those surrounding merger synergies. Our results serve as yet another reminder that analytic techniques such as DCF do not make decisions but only inform them.

Company Valuation in Mergers and Acquisitions- How Is Discounted Cash Flow Applied by Leading Practitioners?

Be the first to comment

Leave a Reply

Tu dirección de correo no será publicada.


*


Google Analytics