There’s generally a trade-off between risk and return in business valuation. Investors expect to receive a higher return as a company exposes them to greater risk. Industry-specific risk is an important consideration when estimating an investor’s expected return. Here’s how valuators measure industry risk and factor it into their analyses. Key factors Virtually every business valuation report includes a section on industry risk. Several factors are considered when measuring industry risk, including: Growth prospects. Valuators evaluate the industry’s outlook, including its seasonal and cyclical trends and stage of development. Strong, predictable growth prospects generally equate to lower industry risk and higher value. Relative power of suppliers and customers. It’s important to look up and down the company’s supply chain to determine which players have the greatest negotiating power. Businesses...
