ValuationSim
is a business simulation designed to be used in corporate valuation courses. It
simulates a small private equity firm that acquires companies based on their
valuations using an assigned budget. Students in teams of two or three individuals
perform valuations based on data and assumptions provided at the beginning of
each round and then decide what acquisitions to make. The aim in each
round is to have the lowest valuation errors and to generate the highest
return from the acquired firms.
The
data and the assumptions are few and simple in the first rounds. As the
simulation progresses, the data and assumptions increase in quantity and
complexity. This process allows the participants to gradually improve
their valuation analytical skills using basic techniques at the beginning and
more refined techniques at the end.
There are instructions and a tutorial for each round. Once students enter their valuations for each firm and their decisions on which firms to acquire, the administrator of the simulation processes the round and publishes reports with the results. Students are required to use Excel in their valuation and to upload their file to the website showing their work. These files are downloadable.
After each round, team reports provide information on forecast errors and annual returns
for each of the firms acquired. A class report allows students to compare their performance relative to other teams infusing a competitive environment that results in higher motivation to succeed while learn valuation techniques.
Team valuations are compared to the valuations performed by the simulation using the DCF method. Students are required to use FCFE, FCFF and the comparables methods of valuation in a sequential mode. Learning is reinforced by applying valuation models and techniques for many firms for multiple rounds, The simulation also improves students' skills in financial modeling using Excel.
The simulation is administered
on asdsim.com. General feedback is given after each simulation round. A score
is assigned based on the accuracy of the valuation and the annual return of the
acquired companies including the spread between the acquisition price and its
intrinsic valuation after one year. Team scores are assigned after each round. At the end of the simulation, team scores are
compared and proportional scores assigned.