Business Valuations

This chapter identifies three different ways of thinking about a business' value, looking at book value, market value, and intrinsic value. A business's book value is usually a poor measure of what a business is worth. Meanwhile, a listed company's market value is its market capitalisation, which is the result of multiplying its share price by the number of shares outstanding. The intrinsic value of a business is what it is really worth; it is this figure which a business valuation seeks to identify. A business valuation which uses the discounted cash flow model (DCF) is a fundamental valuation, in the sense that it aims to measure the intrinsic value directly, by calculating the present value of the future cash flows of the business. The chapter then considers the steps involved in a DCF valuation and valuation multiples.