BVR Yearbook翻译整理(一)

Here I got one pdf file from IACVA (China) which a compilation of selected articles from Business Valuation Resources, translated to Chinese by IACVA (China).

The BVR Yearbook contains some interesting articles about valuation issues and views from some leading valuation expert, such as Damodaran and the new Implied Private Company Pricing Line (IPCPL) introduced by Bob Dohmeyer, Pete Butler and Rod Burkett.

Those selected articles are as follows:


  1. Alternative Model Uses Corporate Bond Yields to Measure a Size Premium
  2. A Fresh Look at Using the Income Approach to Valuing FLPS
  3. Does the Size Effect Still Exist? New Analysis from Pratt and Grabowski
  4. Damodaran Discusses Value Versus Price and His View of the BV World
  5. Damodaran’s Warning Signs that Valuer is becoming a Pricer
  6. How Do You Value a Business that also Owns Real Estate?
  7. Help Clients Squeeze the Most Value of M&A Synergy
  8. The Implied Private Company Pricing Line 2.0
  9. Getting Your Head Out of the Model Valuing a Multi National Company
  10. A Forgotten Statistical Concept Tells Why Your Multiple May be Wrong
  11. 10 Time-Tested Ways to Build a Defensible Divorce Valuation
  12. U.S. Tax Court Judge Laro Discusses Valuation and Expert Testimony Issues
  13. Trade Associations Can Be Excellent Sources of Compensation Data
  14. A Preview of the New Benchmark Resource for Industry Cost of Capital
  15. Opportunities and Special Considerations in the Valuation of Hotels



I just read three recent articles on EBITDA.







Quite interesting to see how EBITDA got challenged though it is used widely in the valuation. EBITDA so far is still seen as a clean measure of what the business has generated, separate from its capital or financing structure and investment. Since we are more interested in the risk of the company’s underlying business operations, then EBITDA seems to me, is relevant to use.


Comments from Ignacio Velez-Pareja:

You might guess what I think of EBITDA.

First of all, I prefer to show THREE financial statements: CB, P&L and BS.

When you do that, you have the best shortcut to CF: CCF = CFD+CFE and these two are seen directly in the CB as the negative of the financing module (3) and the equity transactions module (4). That’s it.

I think that valuation by multiples is still a questionable.

I do calculate multiples just to compare the calculated value with real transactions, not the contrary. I mean, multiple calculation should be done AFTER, valuation (DCF) in order to be compared with similar transactions. I just remember one firm that approached us saying that they were offered to buy the firm by 7 x EBITDA and asked if we could give an opinion on that. We said we had NFI if it was good or not to sell it to the English firm that made the offer. We explained the idea of DCF and that after that we could give our opinion. In short, we valuated the firm, we were very critical and conservative to any input to be included, such as real growth rates and real price increases and we found that EV/EBITDA might range between 12-17. After a couple of years I met the owners and they told me they didn’t accept the offer and that our estimate of multiple was still conservative. They were very happy with their decision not to sell.

Regarding the terminal value, TV, yes, it might be a Pandora’s Box. We usually have 3 estimates for TV: Invested Capital at year N, non-growing perpetuity and growing perpetuity. We try that PV(TV) is around 20%-30% of EV.

Bottom line: I stick to DCF.

Best regards

Note from Karnen: DCF is of course, the most “technical” analysis, compared to the other techniques in the Valuation for M&A, they are Comps and Precedent Transactions. However, the necessity to use Perpetuity in the DCF analysis is still quite problematic as it could take as much as 80% of the Enterprise Value analysis.

IPO Valuation – A Quick Communication with Prof. Peter M. DeMarzo (Stanford Graduate School of Business, USA)

Hi Prof. Peter,

I am referring to the 4th Edition of the Corporate Finance textbook (,

Chapter 23 under 23.2 “The Initial Public Offering”, section “valuation” which said:

Before the offer price is set, the underwriters work closely with the company to come up with a price range that they believe provides a reasonable valuation for the firm using the techniques described in Chapter 9. As we pointed out in that chapter, there are two ways to value a company: estimate the future cash flows and compute the present value, or estimate the value by examining comparable companies. Most underwriters use both techniques. However, when these techniques give substantially different answers, they often rely on comparables based on recent IPOs.

However, when looking into Chapter 9, I do not find any mention about pre-money and post-money valuation.

Normally, for IPO purposes, since the company is going to issue new shares to be offered to the public, instead of the existing shareholders selling their shares to the public (Note: they could do so, post IPO, and there could be a lock-up period, let’s say, one year in certain country, for existing shareholder to be not being able to sell their shares), it is important to see how much the value of the company before and after the IPO proceeds flowing into the company’s bank account. The planned use of the IPO proceeds will be required to be disclosed in the prospectus and this will impact the IPO valuation, as the analyst needs to assess how much the added value of that use to the whole valuation.


The reply from Prof. Peter

Hi Karnen,

Yes, it is a good point worth mentioning that the value will be based on the anticipated future cash flows given any new investment.  (Alternatively, the new cash raised will contribute to the equity value over and above existing enterprise value.)

Thanks again,



Karnen’s responses:

Hi Prof. Peter,

This IPO valuation (or pricing in reality in view of limited number of shares being put on offer for sales to the public, resulting in the working of demand and supply law) is really interesting, though I see the Corporate Finance textbook is quite little in bringing to really appreciate it.

This IPO pricing is essentially about what the company would like to do with the IPO proceeds.

In general, we could separate the use of that IPO proceeds into:

  1. Financing a project/business totally separated from the company’s existing projects/business.
  2. Financing/refinancing current business, for example, the expansion in the same business line (opening more stores, financing working capital, capital expenditures), and/or paying down the bank loans
  3. The combination of No. 1 and No. 2 above.

In the case of No. 1 above, and assuming there is no positive/negative synergy with the current business/project, then the IPO pricing will really look into the added value (=NPV) of that new ventures divided by the number of newly issued shares.

In the case of No. 2 above, then we need to look at the equity value after being added with the NPV brought in by the expansion, etc., after factored into the valuation, the plus and minus of the synergy value. As a note, the NPV of the project will ultimately go to the equity shareholders or investors (Note: NPV project = NPV investors only holds if market value of the debt is identical to book value of the debt. If the debt is traded one, such as bonds, then this could not hold). Then the IPO pricing is the new equity value divided by the total number of common shares (current shares + new shares).

Jakarta, August 2017



I have made 5 videos showing the consistent formulas that we need to use for Tax Shield discount rate, Ke (Cost of Levered Equity), which will give us the same computed value result.

In those videos, I use the assumption of TS discount rate being discounted at Ku (Cost of Unlevered Equity).

In a nutshell, we need to be consistent in which formulas to use..otherwise, the resulted value will not be the same…trust me!

Kd that should be used in the WACC for CCF Kd WITHOUT (1-Tax). Once we apply this, it is so easy to see that the WACC is now Ku….. This is why Ignacio Velez-Pareja (the co-author of the Principles of Cash Flows Valuation book) kept saying that the simplest thing to do the valuation if we don’t have much time, we just apply Ku as the discount rate to CCF.

No circularity….and we have more time to focus on building the better forecast for FCF and TS.

Now I could see WACC applied to FCF is not the best option…easily leading to incorrect TS which might not always be there for the company at tax loss situation, and the constant leverage assumed.

Notes from Ignacio Velez-Pareja: (Note: I put in italics)

For clearness, when you wish to use the name WACC. it is better to say WACC for the FCF or for the CCF. For Ku as discount rate for TS, in the first case, it is Kd(1-T)D%+KeP% or BETTER, Ku-TS_t/V-t-1. Please throw out the first formula for WACC for the FCF to the trash. In the second case, CCF, WACC is Ku = KdD%+KeE%. Throw out the last formula  to the trash. Just use Ku and that’s all.

We have 5 methods: 3 of them have circularity and 2 don’t. No circularity: APV and PV of CCF at Ku. Circularity: PV of CFE at Ke, “general ” WACC and textbook WACC. 

You are 100% right when you say that using Ku and CCF gives you time to devote to make a better forecast and models. 

Please notice that Ku = KdD%+KeE% is true ONLY when Ku is the discount rate for TS. Look at the other tabs/sheets for other discount rates (Kd, Ke or any number) and see the formulas you have worked on in the case of Ku as discount rate of TS and the others. Try calculating Ku = KdD%+KeE% for each case and you will notice that the ONLY case when it is identical to Ku is when Ku is the discount rate for the TS.

In the literature, it seems to me that people mix cases (discount rate for TS) even for perpetuities. For perpetuities, the case of Ke is as follows:

  1. For Ku Ke = Ku + (Ku-Kd)D/E for finite cash flows AND perpetuities.
  2. For Kd, in general, and for finite CFs: Ke= Ku + (Ku-Kd)[Dt-1/Et-1 – VTSt-1/ Et-1] .  For perpetuities. remember that VTS = KdDT/Kd=DT, hence, Ke= Ku + (Ku-Kd)[Dt-1/Et-1 – (KdDT/Kd)t-1/ Et-1] = Ku + (Ku-Kd)[Dt-1/Et-1 – (DT)t-1/ Et-1]. And then you have the popular Ke formulation for perpetuity (that many wrongly use for finite CFs): Ke= Ku + (Ku-Kd)[Dt-1/Et-1 – (KdDT/Kd)t-1/ Et-1] = Ku + (Ku-Kd)(1-T)Dt-1/Et-1
  3. Those many that use (or used) Ke=Ku + (Ku-Kd)(1-T)Dt-1/Et-1 were authors such as Brealey and Myers, just to mention one pair of Holy Cows in finance books. 


Back to my videos, in the next videos, I will use the TS discount rate at Kd (Cost of Debt).