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Preparing Financial Projections and Valuations

This series of articles examines the important process of preparing projected financial statements in order to value a business and support purchase price negotiations.

The Value Price Continuum

  In negotiated acquisitions of private companies, there is a Value-Price Continuum™ that starts with a generalized concept of value and ends with the eventual negotiation of a fully funded and paid transaction price—a done deal. The major “events” along that continuum are highlighted in this article. . .   Read

List of Common Measures of Value

  There are a number of different ways to define and measure the value of a business. This article provides a list of the common measures of business value . . .  Read

Forget About EBITDA

  EBITDA remains popular as an earnings base for determining purchase price multiples and investment returns, although its popularity far exceeds its usefulness. In fact, when it comes to acquisition pricing and analysis, EBITDA has a number of serious limitations. Taken together, the risk of using EBITDA is that you may very well pay too much for the following reasons. . .  Read

Common Modeling Mistakes to Avoid

  Insufficient or inadequate analysis of an acquisition candidate is an invitation for calamity—the proverbial equivalent of running with scissors. In fact, studies have listed “insufficient analysis” as one of the leading causes of M&A failure. By not performing a diligent and complete analysis, a buyer significantly increases the risk of stepping into the overpayment trap. . .  Read

Using Monthly Financial Projection

  There are many things more interesting than the subject of monthly financial projections or forecasts. But if you are called upon to prepare them, you will quickly discover that there is very little guidance available on the subject. This article provides an overview of the reasons for including monthly projections in a valuation; the issues to be considered by an analyst when including them and considerations that will help an analyst prepare a more diligent set of projections. . .  Read

The Trouble with EBITDA

  The August 2008 issue of Mergers & Acquisition magazine contains an interesting article entitled Refining Ebitda.  The sub-title is: “Who knew Ebitda had so many definitions? As deal pros, lenders and companies fight it out in negotiations, the earnings yardstick often gets distorted.”  Read