Page 12 - FINANCE PART 2 - 9. Valuations

VALUATIONS

Assumptions and facts that underlie the

valuation estimate

Growth strategies and growth prospects

• Growth is a key driver of corporate valuation.

• Some firms are positioned to achieve growth through product

innovation or by merging with or acquiring other firms while
other firms have already reached the maturity phase and

cannot continue to stay in a high growth bracket due their size,

market share or the maturity of their products.

• Investors are willing to pay more for firms with a well-defined

growth strategy and financial policies that are consistent with

these strategies and therefore high growth entities trade at

higher multiples than low growth entities.

• In some industries, however, investors are less willing to pay for

EPS growth that is driven by cost cutting, share repurchases

and tax planning, as opposed to revenue growth.

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