Join Jim Stice for an in-depth discussion in this video Infamous business valuation stories, part of Finance Foundations: Business Valuation.
- Business valuation is not an exact science.…- Lots of things can go wrong.…- For example, sometimes data are hidden or distorted.…Other times data are just badly misinterpreted.…Finally, it's often the case that the future…just doesn't turn out according to the forecast.…Let's look at some famous examples…of each of these business valuation problems.…- You may have heard of Enron,…although the Enron debacle is getting far enough in the past…and it's fading in into historical memory.…- Briefly stated, Enron started out…as an energy trading firm,…matching sellers of energy and buyers of energy…and providing price insurance to each,…a perfectly fine business.…
- But, as is often the case with high-flying companies,…real growth just couldn't keep up with expected growth.…So Enron started using accounting tricks to conceal losses…in order to meet the profit expectations set by the market.…- At its peak, Enron had a total market value,…or market capitalization, of about 80 billion dollars.…This valuation was based on the data…
Make sure to check out the Stice brothers' other accounting and finance courses to understand the other economic factors that impact your business.
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- Valuing companies by multiples
- Using price-to-sales ratios to value companies
- Using discounted cash-flow analysis to estimate value
- Valuing McDonald's as a case study