Valuation: Philosophical View, Process, Methods of Bias Mitigation

COMPANY VALUATION
By (Name)
Course Name
Professor’s Name
Institutional Affiliation
City/State
Date of Submission
Company Valuation
For any entrepreneur, or rather, large business owners, determining their value of assets is a requirement for effective decision making. It also helps in choosing investments and for deciding the right price to pay in case there is a takeover of the business. The aim behind any company valuation is help in making correct or approximate estimates of the total value of all, if not most of the assets that the business owns. The assets can include both fixed and current assets. The paper describes the valuation process, the role of valuation in management and corporate finance. It also analyzes some of the valuation approaches that can be applied by different company managers.
Philosophical View of Valuation
Every investor knows that it is wrong to pay more for an asset that it is worth. Though it may be an obvious and logical law, in most times, this law is usually violated, and as a result, businesses pay more for cheap assets. Valuation begins with the acquisition of assets. The aspects of valuation include the exact estimate of the assets and how long the assets can be used for a particular purpose (Antill & Lee 2013). However, there is always a disagreement when it comes to the cost of the assets. While others argue that assets should be valued depending on the possibility of the buyers to pay a higher price in the future, others disagree and state that an asset should be evaluated based on the total cost of inputs, especially when they are fixed assets. Valuation errors have negative impacts on the businesses since it may result in overestimates or underestimates, which affect the whole production process of a firm.
The Process of Valuation
There are two different opinions on the valuation process that are commonly applied. The first view states that valuation is hard science. It involves mathematical analyses that are error free and are used to determine the exact value of the asset. The second opinion argues that valuation is an art. In this case, the analysts have the will to manipulate numbers and use the same to generate the results that best suits them. Arguably, the actual valuation process lies in the middle of the two views (Crain & Law 2017). The main factor that affects the valuation process is bias. Though bias cannot be legislated or regulated out of the picture, it can be mitigated in a number of ways.
Methods of Bias Mitigation during Valuation
First, bias can be limited by the reduction of the organizational pressures. Most of the prejudices attained during valuation are as a result of the institutional factors. For instance, companies that want bias-free valuation should protect their valuation analysts, who are opinionated or are linked with the stakeholders of the firm, and can easily be influenced to alter the result of the valuation process (Chesbrough & Rosenbloom 2002).
Next, bias can be mitigated by self-awareness. In this case, the analyst conducts a pre-test to ensure that they understand possible types of biases they are likely to encounter during the valuation. Self-awareness allows the analysts to make a tactful d...