Carl M. Hubbard

Valuation Methods and Estimates in Relationship to Investing versus Consulting

This study examines which techniques are most used by practicing analysts in establishing the value of a small, closely-held firm and whether these valuations converge with the actual fair market price negotiated in the sales of firms. An experiment was conducted using a case study of one small firm. A wide variety of specific approaches were observed and valuations tended to be conservative. Implications for future research are discussed.

Working Capital Requirements Revisited

ABSTRACT The conventional approach to considering working capital cash flows in capital budgeting is to omit them or include some ad hoc figures at the initiation and termination of the project. The authors argue for an endogenous system of estimating relevant working capital cash flows on a periodic basis. Otherwise, the present value of working capital cash flows is biased against the projects acceptance. Examples of calculating working capital cash flows as related to changes in annual sales are presented for three time patterns of sales and contrasted to the conventional method. An empirical study of the linear relationship of net working capital and sales revenue of 770 companies is reported, and an alternative cash flow model is offered thai includes working capilal cash flows.