Valuation, 7th Edition

27Cross-Border Valuation

To value businesses, subsidiaries, or companies in foreign countries, follow the same principles and methods that we presented in Part Two. Fortunately, accounting issues in cross-border valuations have diminished. Most of the world’s major economies have adopted either International Financial Reporting Standards (IFRS) or U.S. Generally Accepted Accounting Principles (GAAP), and these two standards are rapidly converging. Moreover, remember that if you follow Chapter 11’s recommendations for rearranging financial statements, you will obtain identical results regardless of which accounting principles you follow in preparing the financial statements.

Nevertheless, the following issues arise in cross-border valuations and still require special attention:

• Forecasting cash flows, whether in foreign currency (the currency of the foreign entity to be valued) or domestic currency (the home currency of the person performing the valuation)
• Estimating the cost of capital
• Applying a domestic- or foreign-capital WACC
• Incorporating foreign-currency risk in valuations
• Using translated foreign-currency financial statements

This chapter highlights the steps involved in the special analyses required for each of these issues.

Forecasting Cash Flows

A company or business unit valuation should always result in the same value regardless of the currency or mix of currencies in which cash flows are projected. To achieve this, you should use consistent monetary assumptions ...