For Beta or Worse

The small number that can make a big difference to valuation and damages assessments

Economic Consulting | GAR's The Middle Eastern and African Arbitration Review 2019 (Reprint)

September 5, 2019

In their new article for the Middle Eastern and African Arbitration Review 2019, our experts discuss how the discounted cash flow (DCF) approach can shed light on the assessment of damages in the context of disputes. They explore some of the challenges and considerations in measuring beta, a key component in the formula often used to estimate the cost of equity element of an entity’s WACC, focus on some core concepts that underlie the estimation and use of beta in valuation analyses, and identify some of the key decisions and considerations that valuers (and therefore tribunals) may encounter.

This is an extract from GAR's The Middle Eastern and African Arbitration Review 2019, first published in May 2019. The whole publication is available at

"Assessments of damages are often based on the discounted cash flow (DCF) approach. Under the DCF approach, a valuer measures the present value of the future cash flows that a business, project or asset will earn, or would have earned in a given scenario. A valuation under the DCF approach is, in the simplest terms, a two-stage process:

  • the forecast of a central estimate of the future net cash flows for the business, project or asset in question; and
  • the application of an appropriate discount rate to those forecasts, to convert the forecast cash flows to a monetary sum as at the date of valuation.

The application of a discount rate is necessary to reflect two factors. The first factor is the time value of money (for example, a dollar received today is worth more than a dollar to be received a year from now). The second factor is uncertainty or risk in relation to the estimate of cash flows forecast to arise in the future."

This article has been reprinted with kind permission from Global Arbitration Review.

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Steve Harris

Senior Managing Director, Head of Middle East Economic and Financial Consulting