The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses by Aswath Damodaran

Author:Aswath Damodaran
Language: eng
Format: mobi
Publisher: Pearson Education
Published: 2009-06-18T14:00:00+00:00

Post-Valuation Corrections

After we have derived the value of equity in a growth firm, the final step is to allocate the value of equity across the shares outstanding in the firm. In making this final judgment, three considerations must be kept in mind.

Survival and Illiquidity

The first two considerations are issues that were raised with young growth companies. The probability of survival must be factored into the value, and illiquidity can cause discounts to this value. Neither of these factors is as significant with growth firms. The probability of survival for growth firms is much higher than for nascent businesses. The equity is usually more liquid—especially if the growth firm is publicly traded. Even publicly traded growth firms have to shut down operations, especially if they run out of cash. Shares in these firms may trade far less frequently (and with much higher transaction costs) than shares in more mature companies.

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