If you’re wondering what model we use for our business valuations, here’s a quick introduction. There are lots of different valuation models that can be used. We have opted for what is known as an ‘excess earnings’ model. It’s a standardised valuation model. That means you can compare the valuation year by year, for example when compiling your next annual accounts. To ensure the business valuation is as reliable as possible, we use a structured valuation method. But you should bear in mind that the value calculated is always dependent on estimates and forecasts of cash flows and the market value of assets in the future. Actual outcomes can always turn out differently. Still not sure how it works?
More in-depth information: Our model discounts future excess returns based on available accounting data. The major advantage of this is that it’s based on the comparable stability of accounting measures, whereas other methods are often based on cash flow measures. We believe cash flow measures are less reliable as detailed future forecasts are often difficult to make.
Our valuation model was developed by our chief analyst Tomas Hjelström. He holds a PhD and is also a lecturer and researcher at Stockholm School of Economics.
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