ABSTRACT
This chapter discusses several techniques for valuing business, techniques for placing monetary amounts on the worth of businesses or other assets. Because growth can play a huge role in a firm’s earnings, analysts often use a price-earnings-growth ratio. Managers at an established firm can use the techniques to understand the expectations that markets place on the firm, as a first step during strategic planning. Valuation techniques have three shortcomings that managers need to be aware of. First, the techniques see a firm as a black box with inputs (e.g., share price from equity holders, debt from creditors, etc.) and outputs (e.g., earnings, etc.). Second, little or no attention is given to the role of competition. Third, valuation techniques assume that the external and internal environments of the businesses being valued and their analogs will be similar and not deviate much as the startup grows up to be like its analog.
