An Integrated Theory of Business Valuation

Chris Mercer of Mercer Capital and author of The Integrated Theory of Business Valuation (Peabody Publishing, LP, 2004), explains what the term means and why it’s relevant.

What is an “integrated theory” regarding business valuation?  Let’s begin with a definition.  We know that the value of a business – today – is the value of all expected future benefits (or cash flows) to be derived from the business into perpetuity (that’s forever), discounted to the present at a discount rate that is reflective of the risks associated with the receipt of the expected cash flows.

The valuation triumvirate of expected cash flow, risk and growth flows directly from the definition of value….

The second question is: What are the major valuation issues of today?

Whether in the context of divorce or not, the major valuation issues in business valuation are pretty much the same.  In a one hour session, I won’t be able to go into detail for the issues, but I will provide an overview of each issue and discuss how, in the context of an integrated theory of business valuation, they might be addressed.  My current outline for the coming…