Whether the
economy is in
a downturn or
rebounding, the
fundamental
principles of
creating value in
a business remain
constant, stresses
Michael Epstein,
a partner in the
advisory services
practice at PwC.
a dollar received today. “The discount rate
represents a potential buyer’s required rate of
return for a particular investment opportuni-
ty given the risks associated with it. A higher
discount rate is required where higher levels
of risk are perceived, or where the buyer be-
lieves that the projected cash flows would be
difficult to achieve.”
In the end, it’s all about cash flow. “Busi-
ness values are primarily based on a com-
pany’s future cash flow,” Johnson says.
“Valuation multiples and rates of return are
a function of a company’s risk profile and
growth prospects, as well as the optimism
in the forecast cash flows.”
Preparing for a sale, Epstein stresses again,
takes time. “Great companies work hard at
optimizing their financial performance and
building long-term value by reducing their
vulnerability to the vagaries of the market.”
But what if you don’t have that time? If,
for whatever reason, you need to sell sud-
denly? “Good economy or bad, you’re going
to have a tough time of it,” Epstein warns. “In
a forced sale, time is not on your side and you
could end up with a fire-sale valuation.” END
