Top Down,
Bottoms-Up Reconciliation Model
Most industry analysts and Wall Street bankers, as well as
large corporate financial professionals, are well versed in creating top-down
analyses. That is, they are used to undertaking "aggregate" market studies and
valuations based on third-party-study house reports of market sizes as well as
developing market values based on P/E multiples, EBITDA multiples, NPV/DCF
models, or some other aggregate metric. The problem with many third-party market
studies is that we already know what they will present before we ever purchase
the study. That is, we will see a gross market demand slope over the study
period increasing at approximately a 45–60° slope.
The period under study will change from one report to another, as
will the metrics on the vertical scale, but the slope is almost always the same
(Figure 5).
Hence, we must rationalize aggregate estimates and
third-party market studies with a "bottoms-up" analysis.
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