The hardest part in any valuation is the forecasting of future (relevant) cash flows. In particular, in the case of intangibles valuation for transfer pricing purposes, the OECD recently published final guidance on so-called “hard-to-value intangibles” introducing a type of commensurate with income regulation, requiring robust forecasting and business case building, essentially to avoid the tax administration to deploy the benefit of hindsight when not “all foreseeable” events were taken into account. Therefore, in that respect, but as well as for any type of valuation, we have developed the required know-how and tools to assist our clients with the preparation of forecasts and the build of convincing documentation thereof.
Our value proposition:
- Forecasting uncertainty can be captured in a variety of manners, or a variety thereof: (i) reflecting the forecasting risk in a discount rate adjustment, (ii) real option valuation models, (iii) advanced forecasting models, such as Monte Carlo simulation. Depending on the case at hand, materiality of the transaction, past experience in forecasting, purpose of the valuation, and other parameters, we will propose the valuation approach that balances efficiency with efficacy. In a first phase, we therefore, propose to do a forecasting interview based on a predefined checklist.
- Subsequently, we have the tools to run complex valuation models, and customize them to your needs. We will start with the business plans available and provide further modeling to discover and further assess the critical assumptions used, and what alternative events could alter the forecasts. Forecasting support models we can operate include:
- linear and nonlinear time-series models;
- autoregressive models (‘AR’)
- integrated models (‘I’)
- moving average models (‘MA’)
- combinations of the above such as ARMA, ARIMA, ARFIMA models
- stochastic models such as monte care simulations;
- risk modeling and value at risk;
- extreme value analysis;
- real options models
- The outcome is a robust forecast business case, in line with the initial risk assessment of what level of comfort is needed for the forecast to withstand scrutiny (when and by whom is very much relevant) that is fed into the valuation model (which we could take care of as well).
- Last, but not least, in view of tax valuations where requirements tend to become much stricter globally, we note that we are experienced in performing discussions with tax administrations on the difficult subject of supporting forecasts (and valuations).
For any questions, please reach out to our specialists: Andy, Kenny or Ben