Business Valuation Approaches

The global economic outlook has become more uncertain due to the evolving conflict in the Middle East and the resulting energy shock, which is weighing on growth and adding to inflationary pressures. Global GDP growth is now projected at 2.9% in 2026 and 3.0% in 2027. The resilience of growth reflects strong technology investment, lower effective tariffs and momentum carried over from 2025. But the outlook remains uncertain and depends on current energy market disruptions proving temporary. ‪These projections are based on a technical assumption that energy prices evolve in line with futures markets pricing.‬ ‪There is signifiant downside risk to those projections.‬ Inflation pressures will persist for longer than previously expected. In the G20, inflation is now projected to be 4.0% in 2026, reflecting the surge in global energy prices. Given these challenges, central banks should remain vigilant and ensure that inflation expectations are well-anchored. Any measures to mitigate the economic impact of the energy shock must be targeted and temporary, considering most governments’ limited fiscal space. Increasing renewable energy generation and energy efficiency can enhance economic security while boosting resilience to future price shocks. Read more in our latest Interim #EconomicOutlook, released today: https://oe.cd/6pf

As anyone following EU affairs could not avoid notice, Mario Draghi unveiled his long-awaited report today. He touched upon various issues, but digital technologies in general and AI in particular stand out as a make-it-or-break-it matter. Here is what you need to know. The report's focus is on Europe's competitiveness. For Draghi, the origin of the productivity gap between the EU and the US that started to widen in the mid-1990s is explained mainly by Europe's failure to capitalize on the first digital revolution driven by the internet. Several structural problems are pointed out, particularly those related to access to capital and fragmentation of the single market. However, the most daunting criticism for Brussels is "inconsistent and restrictive regulations" that burden SMEs and innovators. Draghi notes that "while the ambitions of the EU's GDPR and AI Act are commendable, their complexity and risk of overlaps and inconsistencies can undermine developments in the field of AI by EU industry actors." A slap in the face for EU policymakers who boast the 'Brussels effect.' Very harsh words at the press conference as well. "With this legislation, we are killing our companies," Draghi said, pointing out that regulation favors large players since SMEs have fewer resources for compliance. To mitigate this regulatory burden, Draghi suggests harmonizing national AI sandbox regimes, simplifying the implementation of the GDPR, and avoiding contradictions between the two landmark laws. Potential regulatory hindrances should also be regularly assessed. The report recommends the adoption of an EU Cloud and AI Development Act to enhance computing infrastructure and AI capabilities and launch plans to integrate AI models in strategic sectors vertically. Draghi details how he thinks these verticals should be developed, as he sees them as vital for Europe's industrial players to stay competitive. The overall coordination is assigned to a 'CERN-like' AI incubator, an idea that emerged from the EU chief scientific advisors. The report goes one step further and proposes the launch of 'quasi-pilot lines' to bring together the relevant market actors to develop sector-specific AI models. Grand challenges are also envisaged to fast-track translating scientific findings into industrial applications. To sum up, for Draghi, Europe needs to get back into the tech race with the US and China, and the 'AI revolution' is a key opportunity that should not be missed. "A window has opened for Europe to redress its failings in innovation and productivity and to restore its manufacturing potential."

Valuation isn’t one-size-fits-all. It evolves with the stage of the business and the purpose of valuation. Early-stage startups burning cash? > Revenue multiples, scorecard/Berkus methods make more sense than EBITDA-based models. High-growth companies scaling fast? > EV/Sales and DCF with sensitivity analysis help capture future potential. Mature, stable businesses generating steady profits? > EV/EBITDA, P/E, and cash-flow–driven DCF models work best. Declining or distressed firms? > Net Book Value, Price-to-Book, or Liquidation methods become more relevant. The key takeaway: Choose the valuation method based on where the company is in its lifecycle and why you’re valuing it—whether for funding, acquisition, taxation, or restructuring. Using the wrong method at the wrong stage doesn’t just misprice a business—it distorts decision-making. _______________________________________________________ #Valuation #CorporateFinance #EquityResearch #InvestmentAnalysis #FinanceProfessionals #MBAFinance

We’ve updated our #rate forecasts post-election, based on three main assumptions: 1) The #Fed will continue cutting rates, but may proceed more cautiously and maintain some optionality along the way; 2) The economy will continue to grow around trend near term; 3) A Republican sweep raises the prospects of fiscal expansion, which increases growth and inflation expectations. We still believe the direction of travel for interest rates is lower as any policy changes will likely take time to be finalized and implemented, the labor market continues to loosen, and the terminal rate has already repriced higher. But we now see the 10-year US Treasury yield trending towards 4% by June 2025, up from our previous forecast of 3.5%. Read more below.

There is a difference between #FairValue and #IntrinsicValue. As a #registeredvaluer, I am often invited to evaluate active market and secondary market transactions to determine the fair value of equity interests in an enterprise. For instance 2020, A #privateequity firm acquired a healthcare business on August 31st 2020, at 10x EBITDA. The PE firm wanted to hold the investment for 5 years and then hope to sell the investment at a higher multiple with an improvement in revenues and cost structure. On September 1st 2021, i was asked to assess the fair value of the PE's #preferredequity interest. Measurement date = September 1st 2021 My framework to arrive at the FV is as follows: [1] A dozen transactions have occurred in public and secondary markets involving a healthcare company similar to the portfolio company at 9x EBITDA. Here, the fair value of PE's equity interest is 9x EBITDA. [2] However, if the deal flow has reduced and there aren't many deals that have taken place similar to the PE's firm's investment in portfolio company but if all these deals that have taken place are orderly (meaning deals are done without duress), then the fair value is a combination of 9x EBITDA and the discounted cash flow of the portfolio company. The weightage can vary depending on the volume of deals that have occurred before the measurement date. [3] If there are neither active deal flow and these deals have happened under duress, the transaction price of these deals cannot be taken as the fair value. In this case, the intrinsic value will be the fair value. So what do i want to say? If you have an active market where the transactions are orderly, there is no need to do a #DCF to assess the fair value. However, if you do not have an active market like you are valuing a convertible preferred instrument, then valuing cash flows, growth, and risk becomes crucial. The same applies to valuing a private company where the instruments are not actively traded, and transactions are not observable. Though precedent transactions are a reference point, you cannot apply that multiple to the company you are determining the fair value if there are differences between the portfolio company and the recent deals or if these deals have taken place far earlier than the measurement date. Assessing a fair value of a company is a far more challenging job than doing a DCF because you have to take into account the [1] Timing of recent transactions [2] Differences in the information available to market participants in the active market and the market participants in the principal market for the fund's interest.  [3] Degree of dilution [4] Ability to exit via the public market [5] Presence of an active orderly market However, these challenges give a charm to a registered valuer as you need to build sufficient expertise to assess the fair value of transactions. This is a role i love, enjoy and get excited because there is so much to learn in every new transaction.

€800 billion a year. That's the price tag Mario Draghi says Europe must meet to stay competitive with the US and China. As an investor and sustainability entrepreneur, reading the Future of European Competitiveness report was eye-opening. It's clear that Europe has to close the innovation gap and invest boldly in clean energy and digitalisation, but this is only part of the challenge. Draghi emphasises that radical change is necessary to prevent the EU from becoming less competitive on the global stage. Here are a few key points from the report that resonate with me, both positively and with concerns: 👉🏻Scaling EU Companies: Draghi highlights that Europe is failing to scale its companies, which limits our global competitiveness. We have incredible innovation happening here, but the lack of support to take these companies to the next level is a major issue. 👉🏻Investment in R&D: The report points to underinvestment in research and development. If we want to remain at the forefront of sectors like clean tech and mobility, we need much more capital flowing into R&D, especially in emerging technologies like AI and renewables. 👉🏻Venture Capital: Draghi's report underscores the urgent need for more venture capital across Europe, a core message I strongly support. We need greater acceptance of venture capital as an asset class, especially in Germany, where the market remains risk-averse. This lack of funding pushes our most innovative companies to scale up elsewhere, particularly in the US. Europe needs to step up to provide the environment needed for startups to thrive and grow right here at home. 👉🏻Common Debt: The idea of joint EU borrowing for green and digital projects is essential to remain competitive, especially in areas like clean tech and mobility. This is a necessary step to unleash the full potential of the sector. 👉🏻The China Challenge: Europe's reliance on China, particularly in clean tech, needs to be rethought. I've seen firsthand how fierce the competition is in the electric vehicle space. While Draghi stresses reducing dependencies, I do think we must be cautious of the economic disruptions a rapid decoupling could cause. 👉🏻Streamlining Policy: Entrepreneurs are struggling with the slow pace of European decision-making, especially in green tech. We risk losing our competitive edge if we don't accelerate policy change. Europe has an incredible opportunity, but it requires bold action. Do you think Europe is ready to rise to the challenge, or will bureaucracy stand in the way? Let's discuss in the comments... #Draghi #Innovation #Sustainability #CleanEnergy #VentureCapital #Investment

IB/PE Interview question I have come across a few times Why do private equity investments almost always come at a lower multiple than comparable public companies? And what really changes once a company goes public? At a basic level, it comes down to a few structural differences. First, liquidity. In public markets, you can enter and exit positions fairly easily. In private equity, your capital is locked in for years. That lack of flexibility naturally demands a discount. Second, information. Public companies are required to disclose a lot more - quarterly results, filings, investor calls. There’s constant scrutiny. In private markets, you’re often working with limited visibility, which increases perceived risk and brings multiples down. Then there’s governance and investor protection. Public market investors, especially minorities, benefit from more standardized rules and oversight. In private deals, terms can vary widely, and control often sits with a few key stakeholders. Cost and access to capital also play a role. Public companies generally have more avenues to raise money and often at better terms, which supports higher valuations. And finally, exit uncertainty. In private equity, you’re always underwriting not just the business, but also the path to exit - when it happens, how it happens, and at what valuation. That uncertainty gets priced in upfront. Now, what changes after an IPO? Interestingly, the business itself may not change overnight, but the environment around it does. You suddenly have liquidity, broader investor participation, more transparency, analyst coverage, and a clearer price discovery mechanism. All of this builds confidence and, in many cases, leads to multiple expansion. So in many ways, valuation isn’t just about the company’s fundamentals. It’s also about the market it lives in. Curious how others think about this, especially in the context of recent IPOs.

P/E, P/B, EV/EBITDA, EV/Sales, Price/Sales... Confused about when to use what? SAVE this post Let's decode which sectors are valued using these metrics ▶️ P/E - Stable business, and low debt. FMCG, Auto, Tech etc ▶️ P/B - Banks and NBFCs, Basically any lending business ▶️ EV/EBITDA - Any Capital Intensive Business - Where Depreciation and Interest distort earnings. Metals, Capital Goods, Infrastructure, Telecom ▶️ Price/Sales - early stage businesses, where profits are not normalized, and Debt is low ▶️ EV/Sales - early stage businesses, where profits are not normalized, and Debt is high ▶️ Price/Cash Flow - This may be useful for companies where depreciation is high, and for those where cash flow is a better metric than earnings, especially in case of negative working capital. Can be used in conjunction with P/E to understand the working capital situation. ▶️ Sector specific multiples - Some sectors such as insurance get value on the comparison of Market Cap to the Embedded Value. Additionally, every sector can be evaluated on its revenue drivers. For example, we can look at EV/Unit for Autos, EV/Subscriber for Telecom and so on. Remember, the above are just guiding points. There is no rule that you have to use only one metric for a sector. You can use multiple and try and see the understand the trends in those. ----- Peeyush Chitlangia, CFA I help you build a career in valuation and investment banking Follow me for more concepts on Valuation!

As Mario Draghi’s report released today demonstrates, the EU is falling behind global rivals because of limited innovation. Since 2019, the EU has created over 100 pieces of digital regulation. Whether you’re a technology startup or a small retailer, regulatory complexity is a minefield. Developing, launching or just using technology is harder in Europe than elsewhere in the world. Of course, “anything goes” is not an option and rules are required - but the EU is holding itself back at a time where it could be thriving. Our research with Public First shows that generative AI alone could add €1.2 trillion to the European economy. Much of Google’s innovation is led from Europe. We work with talented European entrepreneurs, businesses and innovators every day and see first-hand the benefits that the single market could yield for them. But a new approach is needed if Europe is not to miss the moment. Here’s what needs to change: 1️⃣ Shift from regulatory growth to economic growth: Europe doesn’t just create a huge number of regulations related to digital society - the regulations they create are often conflicting, untested and inconsistently implemented. The explosion of rules makes it almost impossible for Europe to create and nurture the next tech unicorns. Draghi is right that the EU now needs to focus on enabling innovation: promoting the use of digital technologies to innovate and drive through breakthrough advances. 2️⃣ Invest in R&D: To compete in AI, the EU needs to prioritise research and development, working with the private sector to incentivise it and make funding more accessible. The EU currently lags behind the US, Israel, South Korea, Japan, the UK and China on R&D investment. Without the right incentives to develop and roll out new technology, Europe is stifling its talent. 3️⃣ Build the right infrastructure: AI breakthroughs are only possible with the right computing technologies and data centres - plus the renewable energy to run them. So the EU needs to allocate more funding towards financing such infrastructure, as well as incentivising and enabling the private sector to do the same. 4️⃣ Prioritise skills & education: People will need support to seize the benefits of AI in their work and life. A revitalised European Skills Agenda should put skills and education at the centre, while AI should be added to school curriculums. Google wants to help Europe seize the benefits of innovation. Over the last decade, we’ve worked hand in hand with Governments to build new technology responsibly; train over 13 million Europeans in digital skills; and support over €179 billion in economic activity across the EU. As a European, I’m proud of this work, but I know there’s much more to do. Read Draghi’s report here: https://lnkd.in/epBxtymw

𝗘𝘂𝗿𝗼𝗽𝗲’𝘀 𝗹𝗮𝗴𝗴𝗶𝗻𝗴 𝗽𝗿𝗼𝗱𝘂𝗰𝘁𝗶𝘃𝗶𝘁𝘆 𝗮𝗻𝗱 𝗥&𝗗: 𝗠𝘂𝗰𝗵 𝗺𝗼𝗿𝗲 𝗿𝗶𝘀𝗸 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝗻𝗲𝗲𝗱𝗲𝗱 ‼️ Last week the International Monetary Fund published a very interesting and comprehensive paper about the need for more venture capital in Europe to tackle our continents challenges. To name a few: ✔️productivity per hour worked is app 30% lower in 🇪🇺compared to the 🇺🇸 ✔️R&D investments are still way below the target of 3% per annum ✔️Within the top 100 tech companies worldwide merely a handful are European Is it all about 💶 I here you say? No it is about keeping up our welfare for future generations. And about a liveable planet. And increasing our innovation and competitiveness are crucial to do so. Which is also the key message of Mr. Draghi’s report I hope. The IMF report takes a deeper dive into the underlying issues: ✔️ VC investments are only 0,4% of GDP. In the US it is 3x as much ✔️Europeans park their savings in bank accounts. And banks are very risk aversie when it comes to financing hightech startups. ✔️Long term savings go primarily via pension funds, who hardly invest in VC in Europe (despite some positive signs recently) ✔️The EU has fewer and smaller VC funds leading to smaller rounds, less opportunities for scale-up financing and limited exit options ✔️ European scale-ups end up listing in the US instead of Europe itself ✔️ National fragmentation within the EU leads to a lot of barriers for scaling What has to be done? ✅ Increase efforts on a real single European market, for example by consolidating stock market exchanges and diminishing cross border red tape ✅ Make it more attractive for pension funds and insurers to step into VC ✅ Enhance the capacity of European Investment Bank (EIB), European Investment Fund (EIF) and national promotional institutes, like Invest-NL ✅ Implement preferential tax treatments for equity investments in startups and VC funds ✅ Encourage more funds-of-funds And I would like to ad to the findings in the report two things: 1️⃣ We need a cultural mind shift, more urgency and embracing true entrepreneurship 2️⃣ We have to step up our game when it comes to tech transfer. Transforming our high quality academic knowledge into economic and societal impact via startups.