Permanent Podcast: Real Talk About Private Equity and Buying, Selling, and Operating Small Businesses
Financial Structures: Financial Structures & Valuation (EP.16)
Sep 23, 2019
Exploring the complexities of business valuation, including the use of multiples, present value of future cash flows, financial structures, and managing expectations in the market. Highlights the importance of understanding business value and transfer risks in the private equity market.
15:00
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Quick takeaways
- Valuation is a complex process that involves various factors such as financial structures and terms and conditions, often overlooked by the headline valuation.
- Different financial models like multiples of e-bit-dah and discounted cash flow can be used to determine the present value of future cash flows and estimate the valuation of a business.
Deep dives
Valuation Complexity
Valuing a business is anything but straightforward, as it involves factors such as the amount of money traded, ownership level, terms and conditions, and various financial structures. The headline valuation often ignores crucial details, such as liquidation preferences, preferred returns, and debt. Details matter, and the same headline valuation can significantly differ based on the specific terms and conditions.
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