Job Memo

Business Valuation Associate

Do you ever wonder why Apple is valued at 700 billion or Disney is valued at 180 billion? And how these values are determined? If you answer yes to any of the two questions then read on to find out why and how.

I will start off by defining the word valuations, valuations is the process of determining the current worth of an asset or company (investopedia). Therefore, a valuations associate is responsible for using subjective and objective techniques to determine the value of a company or the value of a company’s equipment, inventory and other items on their balance sheet.

Described below are the duties of a valuation associate:

• Conducting Industry Analysis
• Using Valuation Methods to determine the value of the company

Industry Analysis

The first step in the valuation process is to understand the industry in which the company operates. Sometimes the industry may seem obvious while other times it may not. After the industry is determined the following frameworks may be used to help analyze the industry:

•    Macro Analysis
•     Porter’s Five Forces

Macro Analysis allows you to look beyond your industry and to look at the economy for changes and trends in the following areas:

• National and International
• Technology
• Government and Politics
• Natural Environment
• Demographic Structure
• Social Structure

Macro Analysis gives one a better understanding of the impact of these forces on the industry and firm. It also allows one to assess how to best react and adapt to these forces.

Another popular framework used to analyze the industry is Porter’s Five Forces. Porter’s Five Forces looks at the following forces in order to determine attractiveness of an industry – industry profitability:

• Threat of New Entrants
•  Bargaining Power of Buyers
• Threat of Substitutes
•  Bargaining Power of Suppliers
•   Industry Rivalry

By understanding how these forces affect the company, allows the company to better understand it’s position within the market place so that it can reposition itself to become more profitable. 

Valuation Methods

The second step is to value the company or its assets. By using the following methods a value may be determined:

• Relative Valuation
•  Intrinsic Valuation

Relative Valuations is looking at other public companies that are similar to estimate the worth of the company.  The market approach is another name for it because it requires using comparable companies within the market to come up with a value for the company.

Within Intrinsic Valuations, there are two approaches to value a company. The first is the asset approach and the other is the income approach. The asset approach bases the value of the company from their assets. The income approach relies on projected free cash flows that are discounted to present value in order to determine the present value of the company.

Typically, to value a company one or more valuation methods are in use depending on what works best. The value is never an exact number – the methods give a range of values for a company.

Conclusion

I am choosing a career in valuations because the non-cookie cuter aspect intrigues me. The fact that valuations is based on comparables and projected free cash flows means that I as an associate will be able to do due diligence on various industries as well as update complex excel models. I believe that my love for research as well as my growing skills in excel will allow me to do well in valuations.

Readability Statistics

Passive Sentences: 4%

Flesch Reading Ease: 50.2

Flesch-Kincaid Grade Level: 10.8