If there’s one thing that mystifies business students – and business leaders – more than statistics, it’s determining the value of a business, says Edward Nelling, Ph.D., CFA, a professor of finance at Drexel University’s LeBow College of Business.
Cash flow is the most important factor to focus on in valuing a business, says Nelling, author of the new book Business Valuation DeMYSTiFieD, published by McGraw-Hill. “Whether you are buying, selling, or managing a business, cash flow is the main driver of value,” he says.
Business valuation is often regarded as one of the toughest classes in any business curriculum. Nelling simplifies the process by breaking down business valuation methods into easy-to-digest parts, and provides all the skills one needs to determine a company’s worth easily and accurately.
“A common mistake made by many business owners or managers is that they focus too much on growth – they have what I might call an ‘appetite for destruction,’ says Nelling. “Although growth is desirable in many cases, bigger is not always better. Growth must be managed carefully to make sure that it results in value creation.”
Business Valuation DeMYSTiFieD features in-depth coverage of the three main methods of valuing businesses: discounted cash flow, price multiple, and liquidation, and includes easy-to-understand descriptions of financial ratios. Nelling also outlines the best tools and techniques for deciphering valuation reports, financial statements, and guidelines for specific businesses. Practice exercises and a quiz reinforce the newly learned skills at the end of each chapter.
Nelling says his book is intended to be a first book in valuation. “There are other valuation books that are more technical or may focus on other aspects of business, i.e. legal, but I wrote this book to present the fundamentals of business valuation in a clear way that is accessible to most readers,” Nelling says.
Nelling wrote the book not only with business students in mind, but also entrepreneurs, business owners, corporate managers, investors, and anyone interested in buying or selling a business. The result is a book that’s simple enough for a beginner but challenging enough for a more advanced student.
“If you were going to hire a valuation expert before buying or selling a business, this book would be especially helpful for arming yourself with the knowledge you need to ask the right questions,” Nelling says. The book offers expert insight from both buyers’ and sellers’ points of view.
Nelling, a Fellow at Drexel LeBow’s Center for Corporate Governance, teaches courses in investment analysis and financial management, and has served as a consultant on mutual fund and exchange-traded fund performance.