Week 13 Reading Reflection

Hey everyone,

This post is once again dedicated to our weekly reading reflection. This week's reflection comes from our Chapter 14 of our Entrepreneurship book titled, "Valuation of Entrepreneurial Ventures".

One of the biggest things that surprised me in the reading is the depth and breadth of actually valuing an entrepreneurial venture. The section that talked about what a "due diligence" was, really showed me exactly what lengths buyers and sellers go to, to make sure that they are making the correct decision. Tables 14.1 and 14.2 provided immense analyses of basically every aspect of a company as well as countless questions to make sure that not a single faucet of the company was left out of the decision. In addition, I was also not familiar with the fact that it is the responsibility of the buyer of the business to pay for additional repairs and such that are included in additional costs.

One thing that seemed very confusing to me in the reading revolved around the topic of "adjusted tangible book value". The way that it was explained in the book did not really specify if this way was extremely reliable or if it was supposed to be beneficial to both the buyer and the seller. From what I understand based on the accounting courses I have taken thus far, one should always mark their assets down to the lowest possible of market or book value. Overall, if I was a business owner, I would not want my business valued in that manner.

Two questions that I would like to ask the author:

#1. Why is there such a focus on the Price/Earnings Ratio Method when there seems to be so many downsides and situations in where the method would be considered flawed?

#2. Would it ever be more profitable to buy a company at a lower rather than higher growth factor?

Once again, I have not found a point to disagree with. This is mainly due to the fact that I am still learning all of this so there are not a lot of points that I can really disagree with. However, I would have liked a better explanation as to why Kuratko used those particular three valuation methods amongst others and if those truly work better than the others.

Until next time,

-Bryce