96 Common Errors in Company Valuations

29 Pages Posted: 7 Apr 2006

See all articles by Pablo Fernandez

Pablo Fernandez

IESE Business School

Jose M. Carabias

London School of Economics & Political Science (LSE) - London School of Economics

Date Written: April 4, 2006

Abstract

This paper contains a collection and classification of 96 errors seen in company valuations performed by financial analysts, investment banks and financial consultants. The author had access to most of the valuations referred to in this paper in his capacity as a consultant in company acquisitions, sales, mergers, and arbitrage processes.

We classify the errors in six main categories: 1) Errors in the discount rate calculation and concerning the riskiness of the company; 2) Errors when calculating or forecasting the expected cash flows; 3) Errors in the calculation of the residual value; 4) Inconsistencies and conceptual errors; 5) Errors when interpreting the valuation; and 6) Organizational errors.

Keywords: company valuation, valuation errors, valuation

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo and Carabias, Jose M., 96 Common Errors in Company Valuations (April 4, 2006). Available at SSRN: https://ssrn.com/abstract=895151 or http://dx.doi.org/10.2139/ssrn.895151

Pablo Fernandez (Contact Author)

IESE Business School ( email )

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HOME PAGE: http://web.iese.edu/PabloFernandez/

Jose M. Carabias

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

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