Hitchner busts myth about using a CCF on a large firm

BVWireIssue #260-3
May 15, 2024

valuation methods & approaches
income approach, capitalization of earnings, cash flow, discounted cash flow (DCF)

Many valuation analysts “would never be caught dead” valuing a large business using a capitalized cash flow (CCF), writes Jim Hitchner (Valuation Products and Services) in the latest issue of Hardball With Hitchner. For them, the discounted cash flow (DCF) is always the way to go, and you cannot use the CCF. But this is just plain wrong, he declares.

Busted: Hitchner spends a good deal of time on the criteria used for selecting a CCF versus DCF. But the “bottom line here is that a CCF and a DCF can be used to value a small-size business, a medium-size business, and a large-size business,” he writes. The main criterion is not size, but rather the nature of expected cash flows. If a business—no matter what size it is—has stabilized and is expected to have similar margins and growth rates going forward, then a CCF can be used. “There is no prohibition, anywhere, on the use of a CCF on a larger business,” he asserts.

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