Improved forecasting within the valuations process

Company forecasts have long been a part of the valuations process. Budgets, targets and growth plans can all provide information to be factored into the valuator's work.

Much has been made recently of how difficult the job of providing corporate valuations has become with established processes and benchmarks rendered increasingly impotent by the economic turmoil.

However, it has also thrown a harsh light on to the forecasting process. As the clamor for improved budgeting and forecasting grows, the valuations community is becoming increasingly vocal in expressing its concern – as Sven Beyer and Jorn de Neve of KPMG's Advisory practice explain.

Assessing a company's plans for the coming year is an integral part of the process of ascribing a value to the company (or their Cash Generating Units) in the course of impairment testing. However, much of that assessment is based on business plans and budgets which can very quickly be out of date.

Traditionally, that has never been a problem. Likely outcomes and trends could be extrapolated from the data available and an informed assessment could be made. In more serene economic conditions, such extrapolation was deemed more than acceptable.

It goes without saying that times have changed. Nowadays, when we – the valuators – come calling for the latest data regarding projected company performance, falling back on a year-old document will no longer suffice.

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