estimating continuing value

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1、P1:OTA/XYZP2:ABCc10JWBT347/MckinseyJune9,201014:38PrinterName:Hamilton10EstimatingContinuingValueAsdescribedinChapter6,continuingvalue(CV)providesausefulmethodforsimplifyingcompanyvaluations.Toestimateacompanysvalue,separateacompanysexpectedcashflowintotwoperiods,anddefinethecompanysvalueasfollows

2、:PresentValueofCashFlowPresentValueofCashFlowValue=+duringExplicitForecastPeriodafterExplicitForecastPeriodThesecondtermisthecontinuingvalue:thevalueofthecompanysexpectedcashflowbeyondtheexplicitforecastperiod.Makingsimplifyingassumptionsaboutthecompanysperformanceduringthisperiod(e.g.,as-suminga

3、constantrateofgrowthandreturnoncapital)allowsyoutoestimatecontinuingvaluebyusingformulasinsteadofexplicitlyforecastinganddis-countingcashflowsoveranextendedperiod.Athoughtfulestimateofcontinuingvalueisessentialtoanyvaluation,becausecontinuingvalueoftenaccountsforalargepercentageofacompanystotalva

4、lue.Exhibit10.1showscontinuingvalueasapercentageoftotalvalueforcompaniesinfourindustries,givenaneight-yearexplicitforecast.Intheseexamples,continuingvalueaccountsfor56percentto125percentoftotalvalue.Theselargepercentagesdonotnecessarilymeanthatmostofacom-panysvaluewillbecreatedinthecontinuing-va

5、lueperiod.Oftencontinuingvalueislargebecauseprofitsandotherinflowsintheearlyyearsareoffsetbyoutflowsforcapitalspendingandworking-capitalinvestmentinvestmentsthatshouldgeneratehighercashflowinlateryears.Wediscusstheinterpreta-tionofcontinuingvalueinmoredetaillaterinthischapter.Thischapterbeginswithth

6、erecommendedcontinuing-valueformulasfordiscountedcashflow(DCF)andeconomic-profitvaluation.Wethendiscuss213P1:OTA/XYZP2:ABCc10JWBT347/MckinseyJune9,201014:38PrinterName:Hamilton214ESTIMATINGCONTINUINGVALUEEXHIBIT10.1–ContinuingValueasaPercentageofTotalValue8-yearforecastperiod,percent125Forecastper

7、iodcashflowContinuingvalue100815644190–25TobaccoSportingSkincareHightechgoodsissuescommonlyraisedabouthowtointerpretcontinuingvalueandsuggestsomebestpracticesinestimatingcontinuing-valueparameterssuchasgrowthandreturnoninvest