The capitalized cash flow (CCF) method has been all but abandoned for the time being in favor of the discounted cash flow (DCF), points out Chris Hamilton (Arxis Financial Inc.). What’s more, he is factoring the impacts more into the benefit streams than in the risk factor. Hamilton spoke during one of the “Hardball With Hitchner” sessions at the NACVA and the CTI’s 2020 Business Valuation and Financial Litigation Super Conference, which was held live online over five full days (June 15 to June 19).
Outside the box: Be aware that you are not limited to a five-year DCF—you can use two years, three years, or whatever time frames you feel are appropriate. Jim Hitchner (Valuation Products and Services), who moderated the session, says he is using a three-step approach: Step 1 is to examine whether the subject firm can even survive over a certain time frame; Step 2 is to determine whether the firm can improve and to what extent; and Step 3 is to estimate some level of normalized operations post-pandemic. How this analysis pans out can help determine your discrete periods. What’s more, consider using different risk rates for different discrete time periods.
This is just one of the many tips on doing valuations amid the current pandemic offered during the conference. For more, see the article “25 Tips on Dealing With COVID-19 From the NACVA Conference” in the August issue of Business Valuation Update. For nonsubscribers, we are making this issue available on a stand-alone basis—along with other issues that include practical advice on dealing with valuations amid the pandemic.
Extra: A replay of the NACVA conference is underway online all this week. Click here for more information.
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