－読書記録－
McKinsey & Company, Valuation 4th ed., John Wiley & Sons Inc.
Ch.23 Valuing High-Growth Companies p.637-p.651
Valuing high-growth companies such as Amazon or Google is quite difficult issue due to its uncertainties. Let's have a look at share prices of high-growth companies. We recognize that share prices of high-growth companies have a tendency to fluctuate more widely than those of established companies. In other words, the volatilities of high-growth companies are much higher. This implies the uncertainties of high-growth companies.
How should we value those companies. This chapter shows practical insights in valuation works. In valuing high-growth companies, Discounted Cash Flow(DCF) remains the best approach. However, historical financial results of high-growth companies don’t provide useful information. Accordingly, analyses of the past financial data are of little use. The matter is the future forecast of high-growth companies, and the uncertainties of future are among the most formidable tasks to value these companies, I suppose.
Then, how do we forecast the future performances of rapidly-growing companies? This book suggests that we prepare different scenarios about future performance. For example, three scenarios of future farecasts are designed: normal scenario, optimistic scenario and pessimistic scenario.
In addition, these scenarios are weighted with probabilities. Say, the probability of normal scenario is fifty percent, that of optimistic one is thirty percent, and so on. These weighted scenarios are combined and a most likely corporate value is calculated. In this stage, real options valuation can be implemented, but this method is a bit difficult to apply to the practice.
All in all, the DCF method is still effective in valuing high-growth companies. This chapter sheds light on the characteristics of high-growth companies, and provides us with some reminders on valuation tasks.
(学習記録）
1) English Grammar in Use
・unit 90 All, every and whole
・unit 91 Each and every
2) 前置詞マスター教本（ベレ出版） p.292-p.312