Companies’ valuation

The first step is to conduct a valuation of the current business plan, using multiple scenarios if possible. A continuous, internal company valuation is relatively easy to implement, and creates crucial transparency of the value creation potential of the current business plan and its drivers. 

Third, a number of important insights can be gained by comparing the internal company valuation with the results of the analysis of the capital market valuation ... 

Fig. 31.3 Specialty chemical companies valuation comparison USA and Europe.

As described in later chapters, cash flow plays an important role in determining company valuations, capital budgeting, and project selection. 

Just as free cash flow is important to company valuation (Chapter 5), it is also important when evaluating projects. Relevant cash flows are used to evaluate projects. Relevant cash flows are the additional cash outflows and inflows that a company ej eriences if the project is undertaken. 

Acceptance/rejection or valuation cases may cost (or save) a company a great deal of money depending on the error in the analysis and size of production runs. The prosecution of a company may give rise to a fine, or in the most severe cases, imprisonment of individuals. The arrest of an individual for possession of drugs (or explosives) could have very serious consequences the individual concerned may be convicted. If the identification of the substance was made in error, the convicted person will have suffered unnecessarily and there could subsequently be huge compensation claims. 

Bottom line, valuation in biotech companies is analogous to bidding on eBay if there are more buyers for a deal than stock available, premoney value rises if there is a shortage of buyers, premoney value falls. The key to doing a strong deal is to orchestrate a shortage of stock and an excess of buyers. 

FIFO (first in, first out) The valuation of raw material and supplies inventory, meaning first into the company or process is the first used or out. 

One of the most contentious issues in business development is valuation. In truth there is no method which will provide a correct value. Value can only be accurately gauged when an asset is realized. Between the invention of an idea for a product or company and the eventual sale, no matter what method is chosen to act as a surrogate for the real value, intangible elements will remain and confound the accuracy of any valuation. Even when an asset is sold the price paid may not match its expected value. 

Many as the issues are surrounding the valuation of an existing company, these are accentuated to almost grotesques propositions in the case of new ventures. 

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