Assessment- 4

Consider a scenario in which you are employed as a Senior Financial Analyst with S&P Global. Your company
evaluates other companies based on a variety of criteria and offers them a combined grade for both internal and
external use. You have been tasked with determining the valuation of the top five blue-chip companies.

I) Describe various business valuation techniques here, and then indicate which one you will use and why.
II) Additionally, create a thorough report outlining your plan for conducting the business valuation.

Ans:- I) Business valuation is the process of determining the worth of a business or a company. It is an
essential aspect of decision-making for investors, shareholders, and potential buyers or sellers. Here are
some of the most commonly used business valuation techniques:

1. Comparable Company Analysis (CCA): CCA compares the target company's financial metrics
with those of similar companies in the same industry. It helps to determine the valuation of a
business by analyzing the financial ratios and multiples of similar companies.
2. Discounted Cash Flow (DCF): This technique estimates the value of a business based on the
present value of future cash flows. DCF is based on the assumption that the value of a business
is equivalent to the present value of all the future cash flows it is expected to generate.
3. Asset-Based Valuation: This technique calculates the value of a business based on the value
of its assets, such as property, equipment, inventory, and intellectual property.
4. Earnings Multiple Valuation: This technique uses a multiple of a company's earnings to
determine its value. This multiple is usually based on the company's historical earnings or the
earnings of comparable companies.
5. Liquidation Valuation: This technique determines the value of a business based on the
assumption that it is sold in a liquidation sale. The valuation is based on the value of the
company's assets and the costs associated with selling those assets.

II) Report Outlining Plan for Conducting Business Valuation:

Step 1: Define the Purpose and Scope of the Valuation:- The first step in conducting a business
valuation is to define the purpose and scope of the valuation. The purpose could be for mergers and
acquisitions, raising capital, financial reporting, tax purposes, or litigation. The scope of the valuation
should also be defined, including the specific assets and liabilities to be included.
Step 2: Collect Financial Data and Other Relevant Information:- The next step is to gather
financial statements, tax returns, and other relevant financial data for the company. This includes the
balance sheet, income statement, cash flow statement, and any other relevant financial metrics. Other
information to be collected includes the company's history, management team, market trends, and
competition.

Step 3: Choose an Appropriate Valuation Method:- Based on the purpose of the valuation and the
company's characteristics, choose an appropriate valuation method. This may involve using one or a
combination of the methods discussed earlier, such as DCF, CCA, asset-based valuation, earnings
multiple valuation, or liquidation valuation.

Step 4: Apply the Chosen Valuation Method:- Using the selected valuation method, apply the
appropriate formula or model to determine the value of the business. For example, if the chosen
method is DCF, then the future cash flows of the company would be estimated, and the present value of
those cash flows would be calculated using an appropriate discount rate.

Step 5: Perform Sensitivity Analysis:- Conduct sensitivity analysis by making assumptions about
changes in the key drivers of the valuation, such as cash flows, growth rates, and discount rates. This
helps to determine how changes in these assumptions can affect the valuation. Sensitivity analysis
should be performed to determine the best-case and worst-case scenarios for the company's valuation.

Step 6: Prepare the Valuation Report:- The final step is to prepare a detailed report outlining the
process and results of the business valuation. This report should include an executive summary, an
overview of the company, a description of the valuation methodology, the assumptions made,
sensitivity analysis results, and the final valuation conclusion.

Conclusion: In conclusion, conducting a thorough business valuation requires defining the purpose and
scope of the valuation, collecting relevant financial data and information, choosing an appropriate
valuation method, applying the chosen method, performing sensitivity analysis, and preparing a
comprehensive valuation report. It is essential to involve financial professionals and investment advisors
in the valuation process to ensure accuracy and credibility. The valuation report should be clear, concise,
and well-organized, providing stakeholders with the information they need to make informed decisions.