Asset Valuation Assessment

I.   Current State –

  •   Asset Valuation Reciprocity Does Not Exist: 
    1. Discounted-cash-flow valuations cannot reciprocate present and future valuations. 
    2. EBITDA asset valuations do not generate future valuations, only present.
    3. Given NPV equity cost never equals equity cash flow IRR.
  •   Subjective Asset Valuation Weighing:
    1. An organization’s valuation uses the subjective weighing of multiple valuations from various valuation methods – IRR, NPV, EBITDA, etc. . .  to reach an investment ‘go/no go’ decision.
    2. An organization’s value can range considerably among valuation methods.
  •   Financial Statements: 
    1. The four primary Financial Statements are Balance Sheet, Income, Cash Flow and Owner’s Equity Statement.  Presence of the four primary Financial Statements attest to the Financial Statements as being fully integrated.  Fully integrated Financial Statements verify the structural depiction of the Financial Statements. 
    2. Historical primary Financial Statements are always fully integrated, a given.
    3. Prospective Financial Statements depict investment opportunities. An investment's prospective Financial Statements are never fully integrated.  Prospective Financial Statements always lack Owner’s Equity Statements.
  • Asset valuation dogma labels an investment's prospective Owner’s Equity Statement irrelevant. Therefore, prospective Owner’s Equity Statements are ignored.

II.   Root Cause Analysis

An investment’s prospective Owner’s Equity Statement is impossible to generate with existing asset valuation methods, thus prospective Owner’s Equity Statements are necessarily ignored, not irrelevant.  An investment's prospective Financial Statements are never fully integrated and to some degree, misrepresent their investment.  An investment's prospective Financial Statements should always be integrated, matching historical.  The impossibility of an investment's integrated Financial Statements indicate asset valuation flaws. Flawed valuations prevent reciprocity between present and future valuations.  Use of a singular discount rate, ignored time-value axioms and circular computational references cause flawed asset valuations. 

III.  Conclusion

Flawed asset valuations generate a need to subjectively weigh multiple valuations to reach ‘go/no go’ investment decisions.  Flawed valuations also require the use of IRR hurdle rates. 

IV.  Solution

Upgrade and unify the discounted-cash-flow asset valuation method to address current valuation methods’ flaws. Review the “The Fall of EBITDA Asset Valuations” research paper.

V.   Analysis, Conclusion and Solution: Outcome

  • Resolve ignored time-value axioms and circular computational references
  • Ability to generate prospective fully integrated Financial Statements
  • First-ever unified financial metrics: an investment’s given NPV equity cost equals both equity cash flow IRR and ROE (source: new Owner’s Equity Statement)
  • Discounted-cash-flow valuations use the valuation’s other discounted-cash-flow valuations as assumptions and in doing so, reciprocate present and future valuations within a new valuation architecture
  • EBITDA valuations are more similar to discounted-cash-flow valuations than previously thought.  Forceful argument to eliminate EBITDA asset valuations, IRR hurdle rates and weighing multiple valuations
  • Increase investment ‘go/no go’ decision comfort and advance wealth formation measurement