Risk factor summation method

A valuation approach that adjusts a benchmark valuation up or down in fixed steps according to ratings of twelve categories of risk.

Example

A net rating of +1 with 250,000 steps raises a 3,000,000 benchmark to 3,250,000.

Important

The individual ratings are often more useful than the resulting number.

Related terms

  • Pre-Money Valuation — A company's agreed value immediately before a financing round's new money is added.
  • Key-Person Risk — The risk that a business's earnings depend heavily on one specific individual's relationships, judgement or reputation, and will not survive their departure intact.

Lessons that explain it

  • Risk factor summation adjusts a price for twelve named risks — The risk factor summation method starts from a benchmark valuation and moves it up or down in fixed steps for each of twelve categories of risk, making every adjustment explicit. (10 min)

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