Question

Suppose that you were hired as an expert to value start-up (unicorn) firms in Indonesia.

Design a method to estimate the cash flows from a start-up firm ?

thank you

Answer 1

When I am going to value a start up firm in Indonesia, I would be estimating the cash flows according to various factors-

A. I would be trying to ascertain the direct cash flows which are related to revenue in nature and I will be discounting the cash at the present value.

B. I will also be trying to ascertain the fixed cost which are related to project and those fixed costs are always acting as a burden for the company's in the longer period of time for startups.

C. I will always be trying to find out the interest cost which are related to to the firm even though it is a non operating cash flow and it is not accounted in calculation of cash flows but I would be trying to ascertain the interest cost in order to find out the sustainability of the company in longer period of time.

D .I will also try to manage the cash flow with risk adjusted rate and I will be trying to adjust the cost of capital which is used for discounting of the cash flows by macro factors like inflation and other risk which will be downsizing the overall value.

E .I will always be trying to find out the industry risk and the company specific risk in order to ascertain the cash flow because this will be impacting the cash flows of the company.

F. I will also try to find out cash flows after considering the past performance of the company and the related cost of capital of other companies in the industry.

H. I will also be trying to find out whether the project undertaken is taking additional risk or it is in line with the company,so we can use the normal rate of return.