Valuation assumptions
Why valuation assumptions matter more than the model
Valuation assumptions are the inputs that drive every financial model. They translate beliefs about growth, margins, risk, and timing into projected numbers. The model might be built in Excel—but the real story lives in its assumptions.
These inputs aren’t just technical. They’re strategic. The growth rate isn’t a guess. It’s a commitment. The discount rate reflects perceived risk. The exit multiple speaks to how investors believe the company will be valued down the road.
Most models look rigorous. But change just one of these assumptions and the result can swing millions. That’s why credibility lives in the details.
How different assumptions create different outcomes
Imagine two firms looking at the same acquisition target. One assumes 25% growth and a 14× exit. The other models 12% growth and a 10× exit. The business hasn’t changed—but the perceived value has.
That’s the power of valuation assumptions. They turn expectations into action. They guide pricing, structure, and even how much control a buyer demands.
Sometimes the gap isn’t about math. It’s about conviction. Different assumptions reveal different levels of belief in the upside—or concern about the downside.
What valuation assumptions are not
They are not facts. They are structured narratives wrapped in numbers. Too often, operators treat them like truth. But they’re always provisional. Always open to challenge.
They’re also not harmless. Flawed inputs drive flawed strategy. Overestimating growth or underestimating capital needs can sabotage even the strongest execution team. A model built on optimism might drive overconfidence. And that confidence can be expensive.
Valuation assumptions reflect how you think
The best teams don’t hide behind models. They stress-test them. They treat assumptions as strategic tools, not passive inputs. And they use them to align teams on what matters most.
Valuation assumptions don’t just shape numbers. They shape perception. They reveal what you believe—and how clearly you see the road ahead.
« Back to Glossary Index