ValuationSim


What is ValuationSim?

 

ValuationSim is a business simulation designed to be used in finance courses when corporate valuation is an important component. It simulates the business development division of a company making acquisitions over multiple periods using an assigned budget. Students in teams of two or three perform DCF-based intrinsic valuations using data and assumptions provided at the beginning of each round and then deciding what acquisitions to make. The goal in each round is to have the lowest valuation errors and to generate the highest portfolio return from the acquired firms after the first year.

The simulation employs the scaffolding instructional method, where learning unfolds incrementally through structured steps. Initially, the data and assumptions provided are few and simple in the first rounds, progressively increasing in both quantity and complexity as the simulation advances. At a certain point, an element of risk is introduced. This method allows participants to gradually enhance their analytical and decision-making skills, starting with basic valuation techniques and progressing to more refined methods by the conclusion of the simulation.

In each round, participants also receive instructions and a tutorial. They are required to conduct their valuations using MS Excel or Google Sheets, but uploading their files to the web is optional. If so, these files are downloadable by the instructor, but there is no required grading on his or her part. The simulation system assesses performance based on submitted intrinsic valuations and acquisition decisions rather than using the contents in the spreadsheet files. Once the simulation administrator processes the round, performance reports are made available on the web for viewing and download for both students and instructor.

Performance reports for each team after each round provide information on valuation errors and annual returns of the acquired firms after one year including the correct valuations in an Excel file. The annual return is calculated as the difference between the acquisition price and its correct valuation, augmented by the return after one year determined using the cost of capital and its intrinsic valuation.

General feedback on common errors, how to reduce them or how to improve valuations is also provided. The score assigned to each team gives the same weights to valuation errors and annual returns, but this can be adjusted at the request of the instructor. At the end of the simulation, team scores are compared and proportional scores are allocated accordingly.

The simulation is administered on www.asdsim.com.