From the course: Introduction to Business Valuation
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Valuation: Art and science
From the course: Introduction to Business Valuation
Valuation: Art and science
- [Instructor] We've said valuation is both an art and a science. The science part is pretty easy. We can review a company's financials and calculate various ratios. We can look at the company's track record or its performance over time. We can also apply various statistical calculations using company data. The more difficult aspect is the art evaluation. We would need to evaluate the management team, the company culture and strategy, whether the company has a sustainable and defensible moat. In other words, does the company have a long-term competitive advantage versus its competitors? Also, forecasting is an art. We have to look at all of the topics we've listed to help us predict how the company will perform in the future. Let's look at an example of the relationship between the art and science evaluation by looking at ratios and forecasting. With regards to the science-part evaluation, we can look at the past performance of the company using common calculations like return on…
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