Valuation is a complex process. It’s not just about looking at the numbers on paper, it’s about understanding what those numbers really mean and how they will affect your company in the future.

Valuation is a quantitative process of determining the fair value of an asset or a firm. The valuation process typically involves estimating the future cash flows and then discounting them back to their present values.

High growth is any company performing better or expected to perform better, than its industry or the market as a whole. Companies generating a return on equity of greater than 15% are generally classified as high-growth companies.

Valuing high-growth companies is a complete and tough process. It can be done with the right information and tools. You have to decide between the tools you want to use and what factors should be added that affect your decision about the valuation process.

The valuation process requires a great knowledge of valuation as well as details of more advanced interests such as equity dilution, terminal value estimation, and cost of capital adjustment

In this article, we will discuss how to value high-growth tech companies and the importance of understanding their business model.

  • Discounted cash flow also known as DCF analysis
  • Comparable Company Analysis also known as CCA
  • Precedent Transactions

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What is DCF?

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future.

What is CCA?

A comparable company analysis (CCA) is a process used to evaluate the value of a company using the metrics of other businesses of similar size in the same industry. This system basically compiles the analysis and forecasted future earnings of publicly traded companies

What is included in the Precedent Transactions process?

Precedent transaction analysis is a valuation method in which the price paid for similar companies in the past is considered an indicator of a company’s value. Precedent transaction analysis creates an estimate of what a share of stock would be worth in the case of an acquisition.