BVX requires more information on transaction financing than traditional methods since financing inputs are critical to BVX valuation. Financing information can be obtained from sellers, buyers, lenders or M&A advisors involved in buying and selling a business. Often one may have to enter the best estimate for a specific input and then test the sensitivity of that input by changing its value.
Value of a business depends on financing in BVX since valuation depends not only on the interest cost of the debt, but also on debt repayment schedule.
BVX provides accurate valuation for each industry without knowing the industry for the business being valued. BVX captures the industry characteristics of the business by:
1) requiring inputs for its balance sheet, and
2) by the borrowing capacity and characteristics of the assets on the balance sheet.
Supposedly the industry characteristics of a business are reflected in its balance sheet and it's financing in the marketplace.
BVX does not use or calculate weighted average cost of capital (WACC), nor does it use capitalization or any other formula, nor any market data. The interest cost of each debt component is expensed each year based on actual costs. And, debt principal payments are made when due and deducted in the cash flow statement.
BVX uses discounted cash flow (DCF) method to calculate buyer's ROE. However, BVX does not apply DCF to earnings, or to cash flow generated by the business. BVX does not use seller's cash flow to calculate buyer's ROE. BVX applies DCF method to actual post-acquisition cash delivered to the equity investor.