The financial projection period is an important item in business valuation that must be estimated based on well-founded data.
Financial projections are made within this period, which must represent the useful life of the business under study.
The period of use, application, utility and commercialization of the asset or service must be estimated based on market information (external) and strategic and operational information of the company (internal).
Market information (external) must provide estimates of use, opportunities and threats, possible restrictions and/or limits and competitors.
Company information (internal) must provide data on operations, profitability, ESG, HR and demonstrate the ability to continue operations, in addition to a detailed analysis of strategic planning.
The analysis of this information will define the estimated period of use/application of the assets or services that will be considered as the profitable useful life of the asset or service that corresponds to the projection period.
The fixed period may be finite or infinite (perpetual) and when finite it may or may not be long-lasting (over 5 years).
This process ensures that the projection period is estimated with sound reasoning and security for financial analyses.
Comments:
Projections for pre-established periods, by any criteria, lack specific information about the business and the market and may under- or overestimate the value.
Inadequate use of perpetuity may overestimate the value of the business.
Analysis of the market and the company considers the current situation and the potential use/application of assets or services and reliably reflects the useful life of the business (projection period).
