Abstract
Risk, in a financial sense, is defined as variance about some forecasted value. Any time a business appraiser forecasts future cash flows of any sort, these future value estimates are actually means of all likely cash flows in that particular year. The same holds true with discount rate estimates. Several software products allow an analyst to simulate variable future cash flows and/or discount rates but they all require the forecasting of a mean figure, its standard deviation or variance, the shape of its distribution and the correlation coefficients between all variables involved. Usually, accurately estimating most of these data are impossible in a business valuation context. This article presents a simplified method of developing an actual risk measure (standard deviation) that may be used with discounted cash flow valuation models.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Journal of Business Valuation and Economic Loss Analysis
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
