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75 common and uncommon errors in company valuation

  • Fernandez, Pablo

    ()

    (IESE Business School)

This paper contains a collection and a classification of 75 errors seen in company valuations performed by financial analysts, investment banks and financial consultants. The author had access to most of the valuations that are referred to in this paper when consulting in purchases, sales and mergers of companies, and in arbitrage processes. Some valuations are from public reports by financial analysts. The errors are classified in six main categories: 1) errors in the discount rate calculation and about the riskiness of the company; 2) errors when calculating or forecasting the expected cash flows; 3) errors in the calculation of the residual value; 4) inconsistencies and conceptual errors; 5) errors when interpreting the valuation, and 6) organizational errors.

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File URL: http://www.iese.edu/research/pdfs/DI-0515-E.pdf
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Paper provided by IESE Business School in its series IESE Research Papers with number Db/515.

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Length: 52 pages
Date of creation: 05 Aug 2003
Date of revision:
Handle: RePEc:ebg:iesewp:db-0515
Contact details of provider: Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
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  1. Fernandez, Pablo, 2003. "How to value a seasonal company by discounting cash flows," IESE Research Papers D/511, IESE Business School.
  2. Graciela Kaminsky & Sergio L. Schmukler, 2002. "Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns?," World Bank Economic Review, World Bank Group, vol. 16(2), pages 171-195, August.
  3. Wang, Xiaozu, 2000. "Size effect, book-to-market effect, and survival," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 257-273, December.
  4. Knez, Peter J & Ready, Mark J, 1997. " On the Robustness of Size and Book-to-Market in Cross-Sectional Regressions," Journal of Finance, American Finance Association, vol. 52(4), pages 1355-82, September.
  5. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  6. Hamon, Jacques & Jacquillat, Bertrand, 1999. "Is there value-added information in liquidity and risk premiums?," Economics Papers from University Paris Dauphine 123456789/12648, Paris Dauphine University.
  7. Erik Durbin & David Tat-Chee Ng, 1999. "Uncovering country risk in emerging market bond prices," International Finance Discussion Papers 639, Board of Governors of the Federal Reserve System (U.S.).
  8. Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
  9. Donald R. Lessard, 1996. "Incorporating Country Risk In The Valuation Of Offshore Projects," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 52-63.
  10. Jacques Hamon & Bertrand Jacquillat, 1999. "Is there Value‐Added Information in Liquidity and Risk Premiums?," European Financial Management, European Financial Management Association, vol. 5(3), pages 369-394.
  11. Rajnish Mehra, 2003. "The Equity Premium: Why is it a Puzzle?," NBER Working Papers 9512, National Bureau of Economic Research, Inc.
  12. Richard S Ruback, 2002. "Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows," Financial Management, Financial Management Association, vol. 31(2), Summer.
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