An Approximation to Real Options Analysis (ROA) in a Colombian Construction Company

Abstract

This chapter aims to apply a real options analysis to a Colombian mid-size construction company HL Ingenieros presented as a case study looking to expand the variables considered in business valuations so companies can access new sources of funding, improve their capital structure, and become an investment opportunity for inbound foreign direct investment to the country. Most companies are not able to attract these funds due to (1) lack of development in the Colombian capital markets, (2) the lack of information that makes valuation difficult, and (3) the lack of use of alternative methods of valuation that include available strategic options. Several scholars have discussed the use of real options as an alternative method for business valuation that includes the effect of operational flexibility. This case study explores the potential gains in the use of real options for business valuation in companies from emerging countries planning to internationalize their operations.