13. Business Valuation

Question 1

13. What are 3 valuation approaches to judge what a business is worth?

Answer 1

Income based (Pretty much NPV)
Market based
Cost based (Asset based)

Question 2

13. The second step in business valuation is to work out what is being valued, what are the two options?

Answer 2

Enterprise value (operating assets)
Equity value

Question 3

13. What is Free Cash Flow?

Answer 3

FCF is the cash flow available to pay returns to both debt and equity

Question 4

13. Why do smaller organisations have a higher cost of capital?

Answer 4

Investors demand a premium return to compensate tham for the perceived risk associated with smaller firms.
Smaller firms usually have lower marketability, liquidity and less diversification