The Art and Science of Business Valuation

The Art and Science of Business Valuation

The Art and Science of Business Valuation

The Art and Science of Business Valuation


The number of business valuations has exploded over the past decade, as has the number of would-be valuators. Link and Boger provide a sorely needed introductory overview of business valuation methods that points clearly to the limitations of the application of valuation and the strength and weaknesses of valuation tools.


My divine sign indicates the future to me.


The numerical analysis that underlies a business valuation involves a number of quantitative concepts. These concepts are implemented through several mathematical tools. Four of these tools are described in this chapter: forecasting, weighted averages, present value, and capitalization.

There are two important points to note about these four tools. First, they are conceptually related, as will be pointed out in the respective sections of this chapter. Second, the mathematics associated with each tool may appear complicated to some readers, but the looks of mathematics are often deceiving. The concepts underlying each tool are relatively simple, and it is our belief that these underlying concepts must be fully understood so as to implement correctly the tool as well as to understand the interpretative limitations of the tool. Thus, we present the mathematics not to obscure the concept but rather to illustrate the critical assumptions embedded in each concept.

We are of the opinion that one should understand tools before using them. As with the definitions of value in Chapter 2, it is the case that the assumptions brought to a business valuation often dictate the appropriateness of one tool over another.


Forecasting is a statistical technique that has wide applicability in both business activities and in business valuations. Forecasting involves making judgments about future events based on a systematic analysis of past events and fac-

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