9.10 Sensitivity Analysis
By how much do we need change the value of
key inputs to make IBM’s assessed value more consistent with the
market price?
Your goal is to understand the underlying
economics of the company you are valuing in terms of how from
the firm side the firm’s business model and strategy impact upon
your assessments.
For example, the AEG model may be better suited for IBM than the
RIV model because IBM’s business model has evolved to emphasize
service and providing complete solutions to their clients.
As a result, taking into account the shift in IBM’s
strategy described in Item 1 of the 10-K (see the introduction
to this chapter), because IBM’s operations are better described
from earnings as opposed to assets on their balance sheet.
The fundamental growth example, provided in the
introduction, reinforced these insights.