After completing this week's reading, I was most surprised by the amount of steps that must be taken in order to both value a venture and for an existing company to buy another company. Before reading Chapter 14 of our textbook I knew that these processes are by no means simple. However, Table 14.1 and Table 14.2 (Due Diligence Evaluation and Checklist for Analyzing a Business) both clarified the exact points that must be addressed when properly valuing a business.
I was most confused by the process to apply the price/earnings ratio to privately held corporations. While the math makes sense to me, I'm not sure where exactly the capitalization rate comes from. Some more explanation for this quantity would have been helpful in understanding the conversion method.
Given the opportunity to ask two questions I would ask how big the difference between start-up costs and the costs of purchasing an existing business is when creating a final valuation price and how important it is that every item on the Due Diligence checklist be completed. The first question arises from the section at the end of the chapter, which states that while existing companies will be more expensive to acquire than start-ups, the overall cost is cheaper when considering the costs a start-up must incur to obtain a clientele and start making money. The second question comes from the fact that the evaluation checklist is quite long, spanning the length of almost two pages.
Overall I think that the author's points are very sound and do not contain any errors.
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