Question

In your view, how does the valuation of a high-tech company differ from the valuation of a more traditional company?

Answer 1

The order and emphasis given to the valuation methods differ for a High tech Company. In valuing High tech Company we Focus on

1. Future Opportunities for growth.

2. Focus on Potential Size of the market for Companies future growth. These calculations comes with a lot of uncertainity and errors which we can see in the swinging stock prices of these high tech Companies.

3. Long term operating margins: when you have done estimation for future sales you try to calculate the long term operating margins for the Company.

So instead of looking for past performance we work from future opportunities and go backwards. Now after this you work backwards to calculate the valuation of the high tech Company.

Where as in traditional way you look at the past performance and try to extrapolate it for the future not the other way around.