Valuation - “The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.”

Communication - “Communication is a process that allows organisms to exchange information by several methods. Communication requires that all parties understand a common language that is exchanged.”

I have been back at University last week for a course on company valuation. It really served to demystify the valuation process, which is something I think anyone working within a communications role should make the time and effort to understand. There often isn’t a common language across Comms and Finance, an area where there really should be.

While a great deal of the valuation process involves complex formula and mathematics which might make you want to run for the hills, I found out from this course there is a lot more to valuation that meets the eye and it is a lot more exciting than a few mathematical equations.

A valuation model is only as strong as its assumptions and fundamental to any valuation exercise is an understanding of a company’s business, strategy, competitive advantages and drivers that affect its cash flows. The more people involved with these insights and expertise, the deeper the scope and depth of the valuation.

For those focusing on a career within communications, I believe there is a lot to be gained from being able to read a valuation report from front to back and not being blinded by any terminology, acronyms, art or science. If you understand how your company (assets, operations, competitive advantages, opportunities) are valued then you will know what it is important to communicate to the market and in what way. We communicate externally to communicate the value of the business.

This way you also have a strong enough understanding to be able to ask critical questions and challenge the model and the assumptions that lie behind the formula. This is not a negative thing but a key iterative process to get to an optimal end point.

During the course we looked at such things as principles of valuation, different valuation methods, relationships between different methods, how to derive the cost of capital and how to apply appropriate discounts in arriving at a final valuation.
I have written before about self teaching and how in this information/online age all the content we need to upskill is at our fingertips. In this instance, with completely new and foreign content I found it was great to have the solid focus of a classroom setting under the instruction of an expert, so if you get the opportunity to do it this way take it.
Alternatively, I just came across a good series of articles on the Motley Fool Website. I quite liked this quote in the intro,
“Supposedly, only sell-side brokerage analysts have the requisite experience and intestinal fortitude to go out into the churning, swirling market and predict future prices. Valuation, however, is no abstruse science that can only be practiced by MBAs and CFAs. Requiring only basic math skills and diligence, any Fool can determine values with the best of them.”

Introduction to valuation (Motley Fool)

This white paper opens with a quote contradicting the Motley Fool idea above, “What is the business worth?” Although a simple question, determining the value of any business in today’s economy requires a sophisticated understanding of financial analysis as well as sound judgment from market and industry experience.” Which do you agree with?
Read Valuation Methodologies (Wall St Training) (in context of M&A)

I think I will be talking about valuation of companies and interrelationships with communications (both online and offline) a lot more here in the future. I am still getting my head around all the concepts and where the pieces fit but it is a very fascinating area and one I want to learn much more about.