Managing the Family Business by Thomas Zellweger

Author:Thomas Zellweger
Language: eng
Format: epub
Published: 2017-04-07T00:00:00+00:00

Disadvantages of the method:

• Technically more challenging than other methods.

• Estimation of WACC, and therein particularly cost of equity capital.

• Sensitive to few but critical parameters (in particular, WACC, g and FCF5).

7.10.4 Combining different valuations to get a fuller perspective

The above presented valuation methods differ in their assumptions about ‘what is valuable’ in a firm. They all have particular strengths and weaknesses, and are sensitive to a few but critical parameters. It is therefore advisable to compare several valuations in order to obtain a more complete picture of the firm’s value. Note that the choice of valuation methods should depend on the specific firm in question. While net asset valuation is a good choice for an asset-heavy firm, a DCF valuation seems more appropriate for a firm that finds itself in a strong growth phase with significant future investment.

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