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27 novembro 2019


Por Caio Balthazar 

Management always need to make decisions. A critical decision is whether to continue investing in a business or to sell it. This kind of decision requires a lot of caution and, therefore, it is essential to have assistance from experienced and reliable professionals who understand the characteristics of the business and can help in decision making.

There are several difficulties related to a company valuation. One of the most commonly used methods to estimate the value of a company is the Discounted Cash Flow. When using the Discounted Cash Flow methodology, it is necessary to project a cash flow. For the preparation of a cash flow, it is necessary, for example, to evaluate the market conditions, understand the value drivers, analyze the position of the business in relation to its market peers, measure the risks, assess the opportunities, estimate the necessary investments, calculate the discount rate, among other steps.

All the steps required for a Discounted Cash Flow projection have high uncertainty and complexity, and a critical element that can affect them is related to the business life cycle.

According to Aswath Damodaran, a professor of finance at the Stern School of Business at New York University, where he teaches Corporate Finance and Valuation, companies have, in a simplified way, three stages: birth, maturity and decline. According to the professor, companies also do not like to get old, but aging should be accepted as inevitable, requiring a change of focus according to their current stage.

It should be highlighted that each stage of the life cycle has different economic and financial characteristics, different perspectives, and requires a specific management approach that affects in a relevant way the value of a business. Damodaran also indicates that corporate life cycles are becoming compressed, which highlights the importance of considering the stage in which a business is when Management makes a decision.

Therefore, it is essential that the evaluation of a business considers its current life cycle and, therefore, it is critical to analyze its characteristics and specificities. Understanding the life cycle of a business is crucial and helps Management make more reasonable and grounded decisions.

BDO specialists are respected for their vast practical experience with senior Management and business owners across all industry sectors, as well as their technical knowledge of financial regulations and statutes. Our specialists can understand the characteristics of a business, assisting Management in decision making.

Maximizing shareholder value, accelerating strategy growth, or even evaluating whether it is time to sell a business are some of the challenges that require experienced and trusted professionals. BDO Valuation and Business Analytics professionals understand the complexity of these issues and can help your business.

Caio Balthazar

Valuation Manager - BDO Brazil

[email protected]