ValuationSim is a business simulation designed to be used in corporate valuation courses. It simulates a small private equity acquiring firms using an annual budget. Students participate in teams of two or three individuals doing valuations and deciding on acquisitions for a number of rounds. The aim in each round is to have the lowest valuation errors and to generate the highest profitability.
In each round team prepare their valuations based on data and assumptions provided at the beginning of the round. In the first rounds the data and the assumptions are few and simple. As the simulation progresses the amount of data and assumptions increase in quantity and complexity.
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 system computes forecasts errors and profitability.
Their valuations are compared to the system's valuations using the DCF method. In the last rounds comparables are included as a method of valuation.
The information provided to participants in this simulation is simple and limited at the beginning, but increases in amount and complexity as the number of round increases. This process allows the participants to gradually improve their valuation analysis skills using basic techniques at the beginning and more refined techniques at the end.
The application of valuation models and techniques round after round in a repetitive manner reinforces learning. T his simulation improves students' skills in financial modeling.
Reports consist of annual return for their portfolio and each of the firms acquired. Performance of these firms throughout the simulation depends on the same variables and parameters at play when they were selected.
Decisions are made as a team. A team is comprised of two students or three. It is expected that each student will make their own valuations and then as a team select the firms to be acquired.
The simulation is administered through a Web site and general feedback is given after each simulation round. After each round the simulation assigns a score depending 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.
At the end of the simulation each team's round scores are averaged and a final score assigned after comparing the average score to the highest team score.. The team with the highest score receives 100 points. The rest of the teams receive points based on their scores relative to the highest score. Unlike many business simulations the impact of each team's decision are not impacted by the decisions of the other teams.