The first step is to analyze the income statement and cash flow. Cash flow is viewed as a barometer of financial health, and often foreshadows earnings trends. We attempt to forecast the direction and growth rates of the earnings and cash flow streams. The second step is to examine the balance sheet. The corporate balance sheet is recast, assessing real world values of inventories, property, plant & equipment and stated book value.

To these two analytical processes, dynamic forecasting and static asset and liability valuation, we add our assessment of the private market value of the business. In other words, what would this company be worth to an informed industrialist attempting to create or purchase a business with similar characteristics?