Prof Aswath damodaran is an authority on Corporate Finance, sharing his latest post where he defines why we should welcome the Uncertainty. If you can value companies early in the life cycle, you cannot do so with any degree of confidence. I concede that point, but that is exactly why I would try to value them!
I know that statement makes little sense, but to solidify my argument, take a look at the following list of five assets/entities and rank them on the basis of the confidence you will feel in valuing each one.
|Valuation Setting||Your precision ranking||My precision ranking||My reasons|
|$20 in an envelope||(1) Absolute||Nothing to forecast & no risk to adjust for.|
|A mature, money making company in a stable macroeconomic environment||(2) Very high||You can use both company & macroeconomic history in making forecasts.|
|A mature, money making company in an unpredictable macroeconomic environment||(3) Average||While company is stable, macroeconomic shifts can cause earnings/cash flows to change.|
|A young, money losing company in a stable macroeconomic environment||(4) Low||You have no history and know little about market. Lots of unknowns, at least at the company level.|
|A young, money losing company in an unpredictable macroeconomic environment||(5) Very little||The uncertainties you face at the company level are multiplied by uncertainties about interest rates and economic growth.|
Cash in an envelope is easier to value than an ongoing business, an ongoing stable business is easier to value than a young, growing business and valuations in general are easier when interest rates and economic growth are stable/predictable than when they are not.