Valuing Companies: Between Financial Science and the Art of Decision Making
Valuing a company may, at first glance, seem like a technical exercise. Financial statements are gathered, models such as Discounted Cash Flow (DCF) are applied, and a value is reached. But anyone who has gone through an M&A process or led an investment decision knows that the reality is far more complex.
Business valuation occurs at the intersection of two worlds: that of structured and quantifiable financial science, and that of strategic interpretation, shaped by expectations, context, and experience. This balance becomes even more critical in today’s global landscape, marked by VUCA (Volatile, Uncertain, Complex, and Ambiguous) and BANI (Brittle, Anxious, Non-linear, and Incomprehensible) environments. In such scenarios, investment decisions require not only technical rigour but also enhanced capability to read uncertainty and adapt to high-impact exogenous factors such as geopolitical crises, technological disruption, or climate change.
Science is present in the calculation of WACC, which combines the cost of equity (estimated using unlevered betas and equity risk premiums) with the cost of debt, weighted according to their respective shares in the company’s capital structure. It also appears in cash flow forecasting, statistically adjusted multiples, and the use of KPIs such as ROIC, EBITDA margin or EBIT margin. But valuation is also an art — for instance, when deciding how many years to forecast for a high-growth company, or which terminal growth rate to assign to a group undergoing restructuring.
The same DCF model that seems objective can be highly sensitive to assumptions such as future EBITDA margin or CAPEX requirements. EBITDA normalisation, adjustments for expected synergies or regulatory risks, and the inclusion of control premiums in an M&A process are all exercises in which the analyst’s experience and context are crucial.
It is at this intersection that Monte Carlo simulations stand out. This statistical technique structurally models uncertainty by assigning probability distributions to key variables such as growth rates, operating margins, and discount rates. By running thousands of iterations of the model, it produces not a single value, but a distribution of outcomes that shows not only the expected value but also the confidence interval, volatility, and probability of different scenarios occurring. This type of approach allows analysts to test the robustness of a valuation against external shocks and introduces an essential quantitative dimension for navigating a VUCA/BANI world. Monte Carlo simulation thus ceases to be a supporting tool and becomes a central technical component in modern business valuation.
There is no single “recipe” for valuing companies. Yes, there are tools and methodologies — but above all, there are decisions shaped by experience, judgement, and scenario analysis. Mastering the technical aspects is necessary, but not sufficient. The true value lies in knowing when to apply science, when to trust intuition, and, most importantly, how to combine both in a coherent manner.
Because in the end, valuing a company is more than estimating a number — it is about understanding its potential, its risks, and its future in a world that is increasingly unpredictable, yet full of new possibilities.
Business valuation occurs at the intersection of two worlds: that of structured and quantifiable financial science, and that of strategic interpretation, shaped by expectations, context, and experience. This balance becomes even more critical in today’s global landscape, marked by VUCA (Volatile, Uncertain, Complex, and Ambiguous) and BANI (Brittle, Anxious, Non-linear, and Incomprehensible) environments. In such scenarios, investment decisions require not only technical rigour but also enhanced capability to read uncertainty and adapt to high-impact exogenous factors such as geopolitical crises, technological disruption, or climate change.
Science is present in the calculation of WACC, which combines the cost of equity (estimated using unlevered betas and equity risk premiums) with the cost of debt, weighted according to their respective shares in the company’s capital structure. It also appears in cash flow forecasting, statistically adjusted multiples, and the use of KPIs such as ROIC, EBITDA margin or EBIT margin. But valuation is also an art — for instance, when deciding how many years to forecast for a high-growth company, or which terminal growth rate to assign to a group undergoing restructuring.
The same DCF model that seems objective can be highly sensitive to assumptions such as future EBITDA margin or CAPEX requirements. EBITDA normalisation, adjustments for expected synergies or regulatory risks, and the inclusion of control premiums in an M&A process are all exercises in which the analyst’s experience and context are crucial.
It is at this intersection that Monte Carlo simulations stand out. This statistical technique structurally models uncertainty by assigning probability distributions to key variables such as growth rates, operating margins, and discount rates. By running thousands of iterations of the model, it produces not a single value, but a distribution of outcomes that shows not only the expected value but also the confidence interval, volatility, and probability of different scenarios occurring. This type of approach allows analysts to test the robustness of a valuation against external shocks and introduces an essential quantitative dimension for navigating a VUCA/BANI world. Monte Carlo simulation thus ceases to be a supporting tool and becomes a central technical component in modern business valuation.
There is no single “recipe” for valuing companies. Yes, there are tools and methodologies — but above all, there are decisions shaped by experience, judgement, and scenario analysis. Mastering the technical aspects is necessary, but not sufficient. The true value lies in knowing when to apply science, when to trust intuition, and, most importantly, how to combine both in a coherent manner.
Because in the end, valuing a company is more than estimating a number — it is about understanding its potential, its risks, and its future in a world that is increasingly unpredictable, yet full of new possibilities.
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