Company Valuation and Evaluation of Investment projects
The Theory of Value is complex. A running company or an investment project generates cash flow that has a value. To estimate the cash flow is a complex process because one must estimate the future, with the present information, taking into account possible volatile sources and the disruptions in the future. Once this is done, the second part of the process starts: estimating its value at the present time.
We apply this method in the company valuation and in the profitability analysis and to assess the convenience of investment projects.
A company can be defined as a portfolio of projects. In fact, the assets of a company are the result of their investment process through time, and each one of them could be analyzed as a single project. A company will generate value if their investments are profitable. This depends on: (i) an adequate analysis and of (ii) a correct execution.
No project, no matter how profitable it might seem, can be successful if the company doesn’t have the resources to complete it. The evaluation of the traditional project focuses, mainly, in the expected profitability, but usually forgets two important premises: (i) the money availability and (ii) the cash flow risk. In our project investment analysis we are very cautious with these evaluations, and take into account the relevant factors. For this, we evaluate the sensitivity of the cash flows to different variables through the use of Montecarlo Simulations.
Our analysis contemplates: (1) the expected profitability through the estimation of Net Present Value (NPV) and its Internal Rate of Return (IRR); (2) the calculation of the maximum cash exposure, taking into special account, the needs of Financial Needs for Operation and the CAPEX, and; (3) the project risk through the use of Montecarlo Simulations in the cash flows.
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