Introduction: The Central Role and Common Problems of Projections
Projected financial information (PFI) is central to income- and market-based business valuation analyses. Methods such as the discounted cash flow (DCF) fundamentally depend on the reasonableness of projected revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, capital expenditures, and working capital requirements. In practice, however, those projections can sometimes be optimistic, aggressive, or based on assumptions that embed significant execution risk; conversely, they may also be overly pessimistic. They may assume double-digit growth in mature markets, rapid margin expansion without clear operational drivers, or successful execution of unproven business models in new geographies. Conversely, projections may fail to reflect reasonable future revenue growth, margin expansion, or returns on growth-oriented capital expenditures. In these circumstances, the projections do not
