The organization’s valuation over the horizon:

The organization’s valuation is created with future cash flows. As a rule, these cash flows are divided into two (sometimes three) parts, the growth stage and the stability stage.

The question arises, what weight does the organization’s valuation carry on the future and what weight on the horizon’s arrival on the future.

In the table, different discounting evaluations and stability growth stages are given, what weight does the organization’s valuation carry after 10 years on future cash flows…

Less discounting evaluation and more stability growth stage, the more weight is placed on the organization’s future.

Here are two important points:

  1. The total valuation of the organization as 99% of the rule comes in the first 50 years;
  2. If we reduce the horizon to 5 years, then the weight of the valuation on the horizon significantly increases ≈ 80%

Conclusion:

During the organization’s evaluation, critical importance lies not only in forecasting the near future accurately but also in selecting the parameters of the distant future correctly…

*Corporate Valuation Theory, Evidence and Practice
Mark E. Zmijewski; Robert W. Holthausen
Second Edition

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