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Business Valuation and Competitive Advantage Assessment using Greenwald’s Method: Case Study of PT. Selamat Sempurna, Tbk.

Hendra Rakhmawan, Kin Tjendrasa

Abstract


On today’s fast-growing market and industry, investors should be careful with their decision to make investment in a company. Strong growth doesn’t guarantee that a company has healthy financial condition and can’t predict the future business of a company with sufficient degree of accuracy. The DCF methodology in the perspective of value investors has greater margin of error due to its high dependency on growth assumptions. Furthermore, DCF method ignores balance sheet and only emphasize on earning report (Columbia Business 2015). Value investing approach in other side will start valuation process from balance sheet as the source of reliable assumptions of company financial health. Afterward based on current earnings and cash flows, the calculation of company’s earning power can be made. The “moat” test is also important step to assess the value of company from qualitative perspective, the company which has strong competitive advantage and good management capability would bring higher success probability and would continue provide value to shareholders or investors in the future. The growth then can be taken into account on valuation process if a company has strong balance sheet, earning power, competitive advantage, and good management capability (Columbia Business 2015). This case study will conduct the mechanic of valuation process using value investing approach that was developed by Prof. Bruce Greenwald, the company under study is PT. Selamat Sempurna, Tbk. (SMSM), a company which produce automotive parts (Auto Parts industry). Using this approach, comprehensive business valuation and prospect of PT. Selamat Sempurna, Tbk. can be determined.


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