3 ms·

Great link, thanks. I do think I got the jist of it right? Fundamentally, a company proposes a method and the accountant, when applicable, under IFRS, allows fo

by wjnc 7y ago

Great link, thanks. I do think I got the jist of it right? Fundamentally, a company proposes a method and the accountant, when applicable, under IFRS, allows for the method to be used when he signs the financial report. From my (risk management) perspective and in an environment where it's usually mark-to-market and mark-to-quite-sophisticated-model, I just had to blink a few times when I learned that things like the net assets-approach (why is that even an approach) exist. I do understand that in the cases I see there would be materially no difference for the investor (small investments, large firm) when using a more advanced approach like DCF (which still hinges on a few key assumptions).

Havoc 7y ago
Yeah mostly. It's a complicated area frankly. Company, accountant, valuation committee, valuation team, investment advisor and possibly external administrator all sorta play for the same team. They collaborate to get to an approach and a number. Then the auditors roll in and check whether they think the approach is reasonable, assumptions are reasonable and calc was done right. If they don't like it they might force a change. What's acceptable driven more by industry specific norm than anything hardcoded. So I might be looking at two similar debt contracts but do something wildly different because the one is back by real estate deeper in the structure while the other is part of a private equity structure. Not really something an outsider can easily look into - cause it's often in the context of a interlocking web of controls - that again differ by entity/sector. DCF - yes, though more complex isn't necessarily more accurate. In fact I dislike it because it's so easy to manipulate & difficult to call bullshit on. >net assets-approach (why is that even an approach) It depends on what in it basically & how those in turn were valued. Plus nature of the entity - for income/cash generating entities you do something like DCF or EBITDA peer multiple instead.

by wjnc 7y ago

Havoc 7y ago

Yeah mostly. It's a complicated area frankly. Company, accountant, valuation committee, valuation team, investment advisor and possibly external administrator all sorta play for the same team. They collaborate to get to an approach and a number. Then the auditors roll in and check whether they think the approach is reasonable, assumptions are reasonable and calc was done right. If they don't like it they might force a change. What's acceptable driven more by industry specific norm than anything hardcoded. So I might be looking at two similar debt contracts but do something wildly different because the one is back by real estate deeper in the structure while the other is part of a private equity structure. Not really something an outsider can easily look into - cause it's often in the context of a interlocking web of controls - that again differ by entity/sector. DCF - yes, though more complex isn't necessarily more accurate. In fact I dislike it because it's so easy to manipulate & difficult to call bullshit on. >net assets-approach (why is that even an approach) It depends on what in it basically & how those in turn were valued. Plus nature of the entity - for income/cash generating entities you do something like DCF or EBITDA peer multiple instead.