In the practice of the valuation with the APV method or the DCF method, it is tempting to limit the forecast of expected cash flows to the most likely course of events. However, with a division of probabilities, different developments could occur. For each of these alternative scenarios, the business planning of the enterprise could be adjusted in a specific way in order to optimise the results. As a result of this, an enterprise could be regarded as a collection of options: with different probabilities, opportunities could occur for that enterprise that ‘then’ could result in certain advantages or disadvantages. Proper insight in the enterprise is needed in order to identify and value the realistic alternative scenarios, as well as to provide those with a certain probability. Although labour-intensive, this method offers a high added value in the form of scenario planning and corresponding strategic insight.
