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Not enough comps for valuation? Try statistical modeling |
Traditional approaches rely on data from comparable
businesses — but such data aren’t always available.
Statistical modeling can broaden the comparison while
controlling for differences.
It’s surprising how often we encounter managers using
a single cost-of-capital metric or valuation multiple
across the entire organization — instead of breaking
these measures out business by business. For companies
with distinctly different businesses, it doesn’t make
sense to use the same cost-of-capital assumptions or
valuation multiples — or even an average of them — when
assessing these different businesses’ performance or
strategic plans.
Often, so-called pure-play comparisons with similar
characteristics and performance may not exist. And even
where there may seem to be an abundance of comparable
businesses, identifying the right ones is often as much
a matter of personal pride as of getting ahold of enough
data.
2012 |
