Damodaran asks: Are you valuing or pricing?

BVWireIssue #142-3
July 23, 2014

The terms “valuing” and “pricing” mean very different things but, in a recent interview with BVWire, Dr. Aswath Damodaran (Stern School of Business, New York University) points out that they get used almost interchangeably. “I think when we do that we misstate two very different concepts.” This difference is often highlighted by the sale of a recently appraised business at a price far from its assessed value.

Join the discussion: Dr. Damodaran will join BVR for an exclusive special event, Price and Value: Discerning the Difference, an Advanced Workshop, on September 10 in New York City. He will give his overview of the valuation process, but then he’ll focus on “something that we don’t spend enough time on—the pricing process.” What is it that drives the pricing process? How does this differ from the valuation process?

“I’ll use the companies I’ve been valuing for the last few years because they’re the lab experiment to show how value and price can diverge,” he said. He’ll focus on factors that affect price and how this creates a gap between price and value. “There is no question there’s a gap,” he says. “This is the core of the problem. If you are doing the wrong thing given your mission for the valuation, then you’ll come up with the wrong number.”

Your homework: In preparation for his “class,” he suggests that you review the last five valuations you did. “Think honestly about what your mission was with each of them,” he says. Were you doing a valuation for a transaction? A legal setting? Goodwill amortization? Outline the motive you had when you did the valuation. Then ask yourself: Was my mission—given that motive—to price the company or to value the company? “Look at the actual valuation that you did and see if it was consistent with your mission—and whether your mission was consistent with what you started off doing.”

Bring this all with you to his session to stimulate the discussion. “I’m not saying that everybody has the same mission,” he says. “But each of us has a mission and what I’m pushing for is to be honest about what the mission is before we start putting numbers down and drawing on rules about the right things to do.”

Space is limited: Exclusive premium seating is available on a limited basis for a select group to attend this presentation live in New York while it’s being webcast worldwide. For those who attend the live event, there will be a pre-event luncheon with Dr. Damodaran and an extended 30-minute live Q&A session. You’ll also receive a complete recording and transcript of the event.

To reserve your spot to attend in-person, contact BVR today: sales@bvresources.com; (503) 291-7963 ext. 2.

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