--%>

Explain method to analyze and to value seasonal businesses

Are there any methods to analyze and to value seasonal businesses?

E

Expert

Verified

Seasonal businesses can be valued through discounting flows using yearly data, but this needs some adjustments. The right way to value the flows is using the monthly data. Fernández (as 2003 and 2004) demonstrates that errors because of the utilization of annual data are significant. When using annual data, the computations of the value of the unlevered company and of the value of tax shields should be adjusted. Conversely, the debt we have to subtract in order to compute the value of the shares does not require any adjustment.

By using the average debt and the average of the working capital needs does not give a good approximation of the value of the company. Here not much emphasis on the impact of seasonality in company valuation as: Damodaran (1994), Myers and Brealey (2000), Penman (2001) and Copeland (2000) do not even comprise the terms “seasonal” or “seasonality” in their indexes.

   Related Questions in Corporate Finance

  • Q : Problem on annual obligation payment

    ABC Corp. has a challenge: The CEO wants to set aside annual, end of year payments into a sinking fund account earning 5% over the next 6 years in order to retire $25 million in bonds that will be outstanding at that time. Determine the annual payment required each ye

  • Q : What is a 3 x 1 Split What is a 3 x 1

    What is a 3 x 1 Split?

  • Q : Define Cash to cash cycle Cash to cash

    Cash to cash cycle: The concept of cash to cash cycle is financial performance standard, which is associated with the management of a firm’s working capital. The definition of cash to cash or cash conversion cycle is “the length of time a

  • Q : Is it correct to use valuation of

    Is this correct to use in the valuation of the shares of a certain company the “the real net assets value” which, as per to the Institute of Accounting and Auditing (ICAC), shows the “book value of shareholder’s equity, corrected through increa

  • Q : Problem on Corp stocking Cheever Corp

    Cheever Corp stock is selling at $40 a share. Its dividend in subsequent year will be $2 a share and its β is 1.25. Crane Company has similar growth rate as Cheever. The current stock price of Crane is $55 a share, and its dividend this year is $3. The riskless r

  • Q : Calculating the Cost of Equity You are

    You are an analyst in the financial division of Flipper Industries (FI) which has a beta of 1.80 (you are risk-philic, so you enjoy the thrill of working somewhere so risky). The company just paid a dividend of $1 and dividends are expected to grow at 5% per year. The

  • Q : Who were the creators of uncertain

    Who were the creators of uncertain volatility model?

  • Q : Capital Structure Case Study 1 You work

    Case Study 1 You work in Walt Disney Company's corporate finance and treasury department and have just been assigned to the team estimating later today. You quickly realize that the information you need is readily available online. 1) Go to http://finance.yahoo.com. under " Market Summary," you

  • Q : Illustrates the Gordon and Shapiro

    What is the importance and the utility of the given formula: Ke = DIV(1+g)/P + g?

  • Q : Attributes of debt securities What are

    What are the Attributes of debt securities?