Define the value before calculating it.
A valuation is an assessment made for a purpose, at a date and on a stated basis. A business, a shareholding and a particular asset may call for different questions. Those decisions shape the information required and the approaches that are relevant.
Historical accounts are a starting point. The relationship between reported performance, cash generation, financing and expectations needs to be understood before a figure can be interpreted.
Questions this analysis can address
What is being valued, for what purpose and at what date?
Which valuation approaches fit the information available?
How sensitive is the result to the key assumptions?
Scope may include
Review of financial performance
Review earnings, cash flows and adjustments in the context of how the business operates.
Valuation approaches
Consider approaches suited to the purpose, subject and available information.
Sensitivity analysis
Examine how changes in material assumptions affect the assessment.
Assumptions and limitations
Make the basis, valuation date, information sources and constraints explicit.
How the analysis develops
The assignment first defines the interest being valued, the purpose and the valuation date. Financial information and business context are then examined to select and apply an appropriate approach.
Forecasts and comparisons require judgement. The report should explain the important assumptions, the basis of any adjustments and the sensitivity of the assessment to uncertainty.
Before an engagement
Why might two valuations differ?
Differences can arise from the valuation date, the interest being valued, the purpose, the information considered or the assumptions used. Understanding those foundations is necessary before comparing the resulting figures.
How is the scope established?
The initial discussion defines the question, the records available and the intended use of the analysis. Suitability, independence, responsibilities, fees and deliverables are agreed before work begins.
What should I send first?
Begin with a short description of the background, the question and any relevant dates. Arrangements for sharing confidential source records should be agreed separately.