How can you adjust your valuation approach for companies with unique characteristics?

Understand the uniqueness: Identify what makes the company different from others in its industry. Tailor metrics: Adapt valuation metrics to account for unique characteristics. Adjust comparables: Choose comparable companies that share similar unique traits, rather than strictly adhering to industry norms. Evaluate growth prospects: Assess how the unique characteristics contribute to the company's growth potential. Consider risk factors: Recognize any unique risks associated with the company's characteristics and adjust the discount rate accordingly.

l'approche de valorisation pour les entreprises ayant des caractéristiques uniques nécessite une compréhension approfondie de ces caractéristiques spécifiques et de leur impact sur la valeur de l'entreprise. Dans le cas de la valorisation DCF, prenez en compte les flux de trésorerie spécifiques liés aux caractéristiques uniques de l'entreprise. Cela peut nécessiter des ajustements dans les projections financières.

DCF along with scenario analysis can be used for addressing - uncertainty and volatility associated with high growth companies.

Valuing high-growth (high uncertainty) companies is a journey rather than a destination. Due to the nature of the business model, the focus here is much more on fundamental analysis than for mature companies. Furthermore, adequately dealing with uncertainty is of utmost importance - and requires know-how and tools. This also includes a pluralistic view on methods (VC, DCF, multiples, simulations, etc.): When we know little about the future we should use every available method-perspective to shed light on it - but don't forget to take the weaknesses of each method into account. Final remark: you are out-of-textbook here anyway. Don't try to automatically and unadjustedly apply your mature-company-know-how because this will lead you astray!

Discounted cash flow (DCF) analysis is a financial analysis tool that helps companies evaluate the future profitability of a project or investment by calculating the present value of the cash flows that will be received or paid over a period of time. specific. DCF analysis is most commonly used in the context of companies looking to make long-term decisions about whether or not to invest in a particular project. There are some key concepts to understand when performing a DCF analysis. Present value: The present value of a cash flow is the sum of all the cash flows that will occur during the life of the investment, divided by the initial investment. This calculation provides an idea of how much money a cash flow is worth now.

A distinction must be drawn between temporarily and sustainably negative earnings. Temporarily negative earnings (startups in early stage, temporarily distressed companies) are usually not a big problem. In a DCF I recommend to follow the roll-back-method of discounting which will process the negative earnings adequately in the model. For sustainably negative earnings the big question is: Have negative earnings a present value PV below the expected value E (such as in the case of positive earnings: E: +10, PV: +9)? I.e. for E=-10: is PV=-11? Understanding this asymmetry is key to success. If you want to go deeper here: See Meitner/Streitferdt (2014), Journal of Business Valuation and Economic Loss Analysis, 9 (1), pp. 145ff.

The EVA can be used as a metric to determine the value of the company that is in negative results and its changes in the short term and, on the other hand, the MVA can be used in addition as a metric of value creation in the long term. It should be noted in this list of financial indicators, it should not be assumed that if the company presents a negative EVA, it is in loss or destroying value, because some companies present an unfavorable EVA and still have a favorable MVA. This occurs because the MVA indicator does not only show the EVA of a period, but rather shows the potential for value creation in the future, in other words, this means that the EVA obtained in long-term periods are those that will constitute the present MVA.

If negative earnings are temporary, this should not pose a bigger problem in valuation; be aware, that in the event of negative cashflows, the company must still be able to meet its payment obligations at every time. If negative earnings are sustainable, this raises doubts about going concern, which needs to be addressed in detail.

In my experience working on company valuations that are based on intangible assets requires a valuation model which includes both quantitative and qualitative information. It's not difficult to build a model that includes a basis for quantitative output. What is valuable, for both tangible and intangible assets, is understanding the derivative or downstream market factors. For example: Insurance agencies are often valued on intangible value of goodwill for policies to renew in the future. However, the market value of policies and client relationships can be impacted by factors such as the insurance company they hold a policy, the client's industry, and other related market dependencies.

If the company is valued as a whole, intangible - just as tangible - assets are part of the company value. That would typically be the case in DCF valuation, as it includes the combination of assets deployed for the business purpose to earn cashflows. It is the core advantage over individual intangible asset valuation. However, if an individual intangible asset needs to be valued, three core groups of methods are typically applied: market-based, cost-based or NPV-based approaches; the latter being very prominent, such as e.g., relief-from-royalty, or Excess Earnings.

Since the EVA is linked to remuneration mechanisms, it is important to say that it can encourage managers or administrators to prioritize the generation of wealth only in the short term and neglect the permanence of the company in the long term, which will not be beneficial. for this. That is why it is found that this indicator is not applicable to everything.

First, what do you value? If it is common equity then the whole capital structure above this "residual component" has to be taken into account. If it is another component (e.g. certain preference shares) then subordinated equity components are less relevant in your valuation. Second, take optionality properly into account. Complex capital structures regularly include instruments with option-like characteristics. But rarely you can apply a B/S framework. MC-Simulations are often necessary. Third, take care of interactions of instruments. E.g. different preference share classes do not spend indepedent lives. Certain events impact the cash flows of all such shares (but not to the same degree) and hence value developments are correlated.

Non-controlling interests deserve a mention here. A majority of listed entities have NCIs. The financial statements provide only a few clues to value them. Nci might be small, but they could represent a significant part of the groups value. And an uneven part: most of the debt could be issued by 100% owned subsidiaries whereas the NCI do take 20% of the value of the activities. Small NCI numbers can disguise large outside ownership.

Financially, I would recommend going for the residual component because it represents the random fluctuations in the data that cannot be explained by the trend or seasonal components. It is important to analyze the residual component because it can help us identify any outliers or unusual patterns in the data. For example, suppose we are analyzing sales data for a retail store. By breaking down the data into its underlying components, we can identify long-term trends in sales, such as an increase or decrease in sales over time. We can also identify any seasonal patterns that may occur, such as increased sales during the holiday season.

Real options is an application of the financial options methodology to the real (non-financial) world that allows us to calculate Future Cash Flows incorporating uncertainty from their volatility. Furthermore, taking into account the probabilities of the different Cash flows occurring, allows us to incorporate the risk-free rate as an update rate and at the same time consider uncertainty not as a negative element but as an opportunity for improvement and increase of value of the asset, unlike classic methods that penalize it with an increase in the update rate. On the other hand, Real Options allow us to take into account the possible future options of the asset such as growth, waiting and abandoning, unlike other traditional methods.

When valuing companies with unique characteristics, it's essential to adapt your valuation approach accordingly. Firstly, consider using multiple valuation methods to capture the company's complexity comprehensively. Secondly, tailor your assumptions and inputs to reflect the specific nuances and drivers of the company's business model, industry dynamics, and competitive landscape. Thirdly, leverage qualitative analysis alongside quantitative techniques to account for intangible factors such as brand value, intellectual property, or strategic partnerships. Lastly, seek input from industry experts or consult relevant case studies to gain insights into how similar companies have been valued in the past