Lesson 9 of 11 · All lessons in this module
- Disaggregated models: why and how to build a forecast valuation model
- Forecasting revenue: top-down, bottom-up and non-recurring items
- Forecasting operating costs: COGS, SG&A and segment margins
- Expense models: regressions, itemized costs and margin assumptions
- Working capital, capital investments and capital structure
- Asset and financing models: investment, financing needs and FCFE
- Integrated cases: a regional revenue build and richer financing assumptions
- Scenario analysis: risk factors, cost structure and sensitivityVideo lesson
- Matching the model to the company: life cycle, distress and control
- From forecast statements to equity value: FCFF, terminal value and scenarios
- Integrated case: from assumptions to equity value, step by step
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 9 of 11 · 14 min
Matching the model to the company: life cycle, distress and control
How a forecast model is built depends on the company: start-ups are valued on future sales potential, growth companies on future earnings, declining companies with an explicit probability of distress, and control changes as a scenario.
In short
- Life-cycle stage changes the metric (sales → earnings and cash flow → stable cash flow → cash returned), the value driver and the data available.
- Start-ups: skip near-term cash flows; value = expected future sales × P/S ÷ target ROI, where . Post-money − new equity = pre-money; ownership = new equity ÷ post-money.
- Growth phase: detailed revenue and margin projections to a target year, an earnings multiple (P/E) for the terminal value, discounted at the target ROI.
- Decline: adjust cash flows (lost customers, impairments), note that discount rates are hard to estimate and peer multiples assume a going concern; weight a going-concern value and a distress value by the probability of distress.
- Control: financial investors take management as given; strategic or activist investors may change the business, which can be modelled as a scenario.
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