Understanding the Basics
Business Analysis And Valuation Ifrs Edition is a textbook and framework approach that teaches you how to value a company using International Financial Reporting Standards as the underlying language. Most valuation courses use US GAAP as their default, which means when you show up in an actual European or global deal, your numbers look wrong because they were built on a different accounting foundation. This book fixes that disconnect. The approach breaks into two parts. The first part covers business analysis — understanding the industry, the competitive strategy, the quality of earnings, and whether the financial statements actually tell the truth. The second part covers valuation — primarily discounted cash flow analysis and comparable company multiples, both adjusted for IFRS-specific quirks like lease treatment, revenue recognition timing, and impairment testing.
Business Analysis And Valuation Ifrs Edition Download
You can find the textbook by searching for "Pedro Pesutti, Business Analysis And Valuation Using IFRS." The download typically comes through academic resource sites or the publisher's companion materials. Make sure you grab the edition that matches your course requirements, since the IFRS standards themselves have been updated several times and the newer editions reflect those changes in the examples. The core methodology doesn't change dramatically from US GAAP-based valuation, but the details eat you alive if you don't watch them. Here is what actually matters on a real engagement. Under IFRS 16, leases are capitalized on the balance sheet. That means your debt-like obligations look completely different than they would under the old IAS 17 standard where operating leases stayed off-balance-sheet. When you build a DCF model, you need to separate the interest component from the principal repayment on those lease liabilities. If you don't, your free cash flow to the firm calculation will be wrong, and nobody will catch it until the deal falls apart during due diligence.
I once valuing a mid-market European logistics company where the seller had a fleet of vehicles under operating leases that IAS 17 treated as off-balance-sheet. The buyer's team ran a valuation using the seller's reported numbers without adjustment and came in at €180 million. I recast the leases onto the balance sheet, added the corresponding right-of-use asset, and recalculated the debt-like obligations. The enterprise value dropped to €152 million. The difference wasn't a rounding error. It was a deal-killer. The buyer walked away at €152 and the seller thought they were crazy. They signed six weeks later at €155.
Get the Full Details
Common Pitfalls That Beginners Miss
Revenue recognition under IFRS 15 is the biggest minefield. The standard requires you to identify performance obligations in a contract and recognize revenue when control transfers, not when risks and rewards transfer. Under US GAAP, the older revenue standards sometimes allowed revenue to be recognized earlier in certain industries. If you're working with a company that has long-term service contracts or bundled product-and-service deals, the revenue timeline shifts. That shift affects your projected cash flows in years one through three, which in a DCF model accounts for roughly 60 to 70 percent of the present value. Impairment testing under IAS 36 works differently than the US GAAP two-step approach. IFRS uses a one-step recoverability test based on value in use, which is essentially a discounted cash flow calculation done inside the impairment analysis itself. This creates a circularity problem. If you're doing your own DCF valuation and the company has impaired assets, you need to understand whether management's value-in-use calculation used the same discount rate and growth assumptions you would. Often they didn't. Management tends to use optimistic assumptions to avoid impairment. You should rebuild the value-in-use schedule yourself from the ground up if you plan to rely on it. Another thing nobody warns you about: IFRS allows revaluation of property, plant, and equipment under IAS 16. Some companies choose this model, which means their asset base doesn't match the historical cost you'd expect. When you calculate capital employed or net operating assets for a valuation, using the revalued amounts without adjusting for accumulated depreciation differences can inflate or deflate your equity value by double-digit percentages depending on the sector.
Practical Walkthrough
Let me walk through a simplified example so you can see how the pieces connect. Take a German manufacturing company with €50 million in EBITDA, €120 million in total assets, €40 million in interest-bearing debt, and €10 million in lease liabilities that need to be added as debt for valuation purposes. The WACC is 9 percent, and you're assuming a 3 percent terminal growth rate. First, you adjust the balance sheet. Add the lease liabilities to debt. Recalculate the net debt as €12 million plus €10 million minus cash. Let's say cash is €8 million, so net debt is €14 million. Next, you build the DCF. Start with EBIT, apply the tax rate under IFRS — Germany uses about 30 percent combined tax — and work through NOPAT, subtract capital expenditures, add back depreciation, adjust for changes in working capital. The IFRS working capital treatment can differ from what the income statement shows because of the way IFRS defines provisions and accrued expenses.
Project five years of cash flows. Discount them at the WACC. Calculate the terminal value using the perpetuity growth model. Sum the present values. Subtract net debt. Arrive at equity value. In this case, if your five-year FCF sum is €85 million and the terminal value is €620 million discounted to present value of €403 million, the enterprise value is roughly €488 million. Subtract €14 million in net debt. Equity value is about €474 million. The process takes about two hours if your model is already structured. The first time you do it, it takes all day because you're looking up every IFRS reference. By the fifth one, you can do it in your sleep.
When This Methodology Breaks Down
IFRS-based valuation assumes the financial statements are reliable. They aren't always. In many smaller European private companies, especially in Eastern Europe, the financials are prepared for tax purposes rather than for economic reality. The revenue recognition, the inventory valuation, the treatment of intangible assets — none of it follows IFRS faithfully. Running a DCF on those statements gives you a number that is precisely wrong. You need to either reconstruct the financials from raw data or use a market multiple approach with heavy adjustments, neither of which is comfortable. The textbook does a good job with clean financial statements from listed companies. It doesn't prepare you for the mess you encounter in private company transactions. For those situations, I recommend supplementing the book with actual annual reports from companies in the same sector. Read ten annual reports. Look at the notes. See how different companies apply the same IFRS standard in different ways. That practice teaches you more than any single chapter ever will.
What to Focus On When Studying
If you're using this as a study guide, prioritize the chapters on financial statement analysis under IFRS before you touch the valuation chapters. Understanding how IFRS treats pensions, provisions, goodwill, and intangible assets is the foundation. Without that, your valuation is built on sand. The valuation techniques themselves are standard finance. The IFRS layer is what separates people who can do this from people who can't. Pay close attention to the adjustment examples. The book includes side-by-side comparisons of IFRS versus US GAAP treatment for the same transactions. Those comparisons are where the real learning happens. Skip them at your peril.
Where to Find Supporting Materials
Beyond the textbook itself, look for the companion website that typically provides spreadsheet templates and additional case studies. Many university libraries also have access to the IFRS Foundation's official standards documents, which you should reference whenever the textbook mentions a standard. The official IFRS site (ifrs.org) has the current versions of IFRS 13, IFRS 15, IFRS 16, and IAS 36 freely available. Reading the actual standard after you've read the textbook's explanation of it will cement the concepts much faster than re-reading the textbook alone. The model templates in the companion materials are a solid starting point, but don't just copy them. Build your own from scratch at least once. The process of constructing the model forces you to think through every assumption, and that's where the actual competence develops. Copying a template gets you a number. Building it gets you understanding.
Final Note
This book won't make you an expert on its own. It's a framework. The expertise comes from applying it to real financial statements, making the adjustments, and seeing where the numbers go wrong. The IFRS environment is more flexible than US GAAP in some areas and more rigid in others. That flexibility is both a gift and a problem. It allows for judgment, which means two analysts can value the same company differently and both be technically correct. You need to understand the range of acceptable interpretations, not just one specific application. The people who do this well are the ones who spend extra time in the footnotes. The footnotes are where the real information lives. The summary numbers on the face of the statements are mostly noise.
