{"id":261,"date":"2010-12-06T01:55:48","date_gmt":"2010-12-06T07:55:48","guid":{"rendered":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/?p=261"},"modified":"2010-12-06T01:55:48","modified_gmt":"2010-12-06T07:55:48","slug":"business-valuation-with-googles-groupon-offer-part-1","status":"publish","type":"post","link":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/finance-tutor\/business-valuation-with-googles-groupon-offer-part-1\/","title":{"rendered":"Business Valuation with Google’s Groupon offer! (part 1)"},"content":{"rendered":"

Google’s recent bid to buy Groupon’s business offers interesting lessons in valuation. Rather than rewrite the story, I want to point you to a finance tutor<\/a>‘s article on business valuation<\/a>.<\/p>\n

Finance Tutor addresses the article from the\u00a0perspective\u00a0of testing the valuation concepts you learn in business school. With their\u00a0permission, I repost finance Tutor’s article here.<\/p>\n

Part 1<\/strong><\/p>\n

You learn the about\u00a0business valuation<\/strong> in business school. But are the business valuation concepts you learn in business school used in business valuations in the real world?\u00a0 Lets check a current business valuation:<\/p>\n

You must have heard about Google\u2019s interest in buying Groupon\u2019s business at a reported valuation of $5-6 Billion<\/strong>! How could Google arrive at this business valuation of Groupon\u2019s business? Valuation principles direct us to use either the discounted cash flow method orvaluation multiples<\/a> method to arrive at business valuations.<\/p>\n

\n

Business Valuations using the Discounted Cash-flow Method<\/h2>\n

To arrive at business valuation using the Discounted Cash-flow (DCF) process, we need to project out the cash flow of the business into the foreseeable future.\u00a0 We discount this cash flow at the appropriate discount rate to arrive at the present value of cash flows for this valuation period. We then estimate a terminal value (present value of the cash flow beyond the foreseeable future assuming cash flow grows at a constant rate usually inflation rate or slightly higher).\u00a0 The sum of the present value of cash flows for the foreseeable valuation period and the terminal value form the basis of the business valuation using the DCF method.<\/p>\n

Can we estimate Groupon\u2019s business value using the DCF method? We will need detailed projections of Groupon\u2019s future cash flow which we do not have! We can try arrive at the business valuation with some estimates. But why do this when we have an easier approach?<\/p>\n

Business Valuations using the Multiples<\/h2>\n

Business valuations using the\u00a0valuation multiples<\/a> is essentially looking at the business valuation similar companies have obtained recently and relating that to known business metrics like sales, earnings per share, customers,\u00a0 etc. Groupon does not have any comparable companies with publicly available data. We therefore need to look at companies with similar business characteristics, growth rates, profit margins, etc to arrive at the appropriate\u00a0valuation multiples<\/a>.<\/p>\n

Part 2 of this post shows you how valuation multiples<\/a> can be used to arrive at the business valuation of Groupon.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

How did Google arrive at Groupon\u2019s business value. business valuation principles direct us to use either the discounted cash flow method orvaluation multiples method to arrive at business valuations.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[14],"tags":[60,78,76],"_links":{"self":[{"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/posts\/261"}],"collection":[{"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/comments?post=261"}],"version-history":[{"count":1,"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/posts\/261\/revisions"}],"predecessor-version":[{"id":262,"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/posts\/261\/revisions\/262"}],"wp:attachment":[{"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/media?parent=261"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/categories?post=261"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/graduatetutor.com\/mba-tutor-homework-help\/wp-json\/wp\/v2\/tags?post=261"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}