This post was shown a due diligence report but reporting a valuation of only 6 number for a business
coughing out P4 - 5 million a year
Some errors were observed in the work purportedly a certified public accountant. It was neither a due diligence nor a proper valuation report
1. In the asset portion, the cash of the business totaling P8 m was totally disregarded? What? You are valuing the asset of the business and not considering if the cash will be dissipated or not
2 The consultant arrived at a Weighted Average Cost of Capital which was achieved only on the 5th year And conveniently used this as WACC (ergo for the discounted cash flow the intrinsic method, a high 55% WAC would result in lower valuation
3. In the intrinsic portion (NPV) analysis, there was no current year cash flow (and in actuality, the current net cash flow amounts to P4.5 million
1 In the projected cash flow for the next five years, 2023 cash flow is only P9,k
2. The WAC again of 55% erroneously computed is used as the discount factor. The high %
results in a very low valuation
PSE lists WACC at only 6.84 % and the 55% /5 is only 11%
Not every body understands business valuation At entrepreneurship we teach this skill
