Essay on Entrepreneurial Finance

Entrepreneurial Finance

The valuation of the venture is highly essential for the organizations and the investors so that they can determine whether the venture in which they are investing is going to be profitable in the future or not. There are many financial techniques or approaches that can be utilized for the valuation of new ventures. The techniques used for valuing new ventures include IRR (internal rate of return), NPV (net present value) and payback period. With these project appraisal techniques, the profitability of the new projects can be determined and the investor can make the decision about whether investing in the venture will be a good decision or not.

In chapter 10 & 11 different approaches of valuing new ventures are discussed in detail. The techniques like discounted cash flow model (DCF), venture capital method and relative value method are discussed in detail in these chapters. The discounted cash flow (DCF) method is an approach through which the new ventures or projects are valued by using the time value of money concept. Incorporate, and investment finance DCF model is widely utilized. In DCF the future cash flows are assessed and then discounted with discount rate so that present values can be obtained. The sum of all the present values including outgoing and incoming cash flows in the Net present value (NPV) (Chandra, 2011).

For discounting the cash flows the discount rate is required. Usually, the cost of capital is utilized as the discount rate. The cost of capital or WACC (weighted average cost of capital) is computed in order to determine the discount rate. The weighted average cost of capital includes the cost of debt and equity.  In the beyond meat spreadsheet, it can be seen that the valuation of the beyond meat has been done by utilizing the discounted cash flow model. The present values of beyond meat are obtained by discounting the cash flows using the cost of capital as the discount rate (Fridson & Alvarez, 2011).

In the chapters, the details regarding the capital asset pricing model (CAPM) are also provided in detail. The capital asset pricing model provides brief information about the systematic risk and the amount of return provided by the asset. In other words, the CAPM provides information about the relation between the risk and return of the asset. In the beyond meat spreadsheet, the risk premium of the equity can be seen. Along with risk premium information, the beyond meat spreadsheet also contains information about the beta (Chandra, 2011).

In the chapters, the information about beta and how beta can be computed is provided. In the spreadsheet, the global US beta detail can be seen in detail. Overall it can be said that the techniques used by beyond meat for valuation are discussed in these chapters. There is no difference in the techniques mentioned in the chapter and the spreadsheet. However, there are other techniques like relative value method and venture capital method which were also discussed in the chapters but not utilized by the beyond meat in their spreadsheet (Pandey, 2015).

If all the above discussion is summarized than it is evident that in the beyond meat spreadsheet it can be seen that the valuation of the beyond meat has been done by utilizing the discounted cash flow model. The present values of beyond meat are obtained by discounting the cash flows using the cost of capital as the discount rate. However, there are other techniques like relative value method and venture capital method which were also discussed in the chapters but not utilized by the beyond meat in their spreadsheet.

References of Entrepreneurial Finance

Chandra, P. (2011). Financial Management. Tata McGraw-Hill Education.

Fridson, M. S., & Alvarez, F. (2011). Financial Statement Analysis: A Practitioner's Guide. John Wiley & Sons.

Pandey, I. (2015). Financial Management. Vikas Publishing House.