5. Challenges in valuing growth
5. Challenges in valuing growth Read More »
Valuation
12. Step #6 – Scenario analysis
FAQ: How is IRR calculated in the scenarios? For each scenario, the entry valuation is FIXED at $2.0 billion. The exit valuation varies by scenario as discussed.
12. Step #6 – Scenario analysis Read More »
11. Step #5 – Exit multiple
FAQ: Why do we use NTM multiples for valuing businesses in exit scenarios? Shouldn’t the valuation be based on what the business has achieved rather than what it’s likely to achieve in the future? Particularly in growth scenarios, Next Twelve Months (NTM) multiples are frequently employed because the past is considered a sunk cost. The
11. Step #5 – Exit multiple Read More »
13. Step #7 – Ability to pay
Explanatory note for slide at 11:16 Isolate revenue growth (hold multiple constant): Isolate multiple compression (hold growth constant): Because there’s no cash impact in this simplified example, add these two together you’ll get the total IRR of +7%
13. Step #7 – Ability to pay Read More »
