When Do Businesses Need Company Valuation Services?
August 18, 2022
Company valuation services entail determining a company’s fair economic value, which in turn depends on several factors. The process of determining the economic value is not an exact science and the end result often varies according to the method adopted for evaluation different methods are employed for different purposes.
A company valuation is necessary if the owner wishes to sell all or a portion of the business, merge with another business, or conduct a tax analysis. It also comes in handy if a business needs to raise debt or expand by adding equity. The valuation process involves an exhaustive analysis of all aspects of the business including the company’s management, capital structure, the current value of its assets and future earnings.
Specific approaches are picked based on the need for company valuation services
- The notion of the time value of money is used in discounted cash flow analysis (DCF) to value security, project, business, or asset. The method involves estimating all future cash flows and discounting them using the cost of capital to determine their present values (PVs). The value of the prospective cash flows is assumed to be their net present value (NPV).
- The time's revenue business valuation approach multiplies a stream of revenues generated over a defined period of time by a variable that depends on the industry and the economic environment. Applying this approach could be difficult if a company operates in numerous industries as picking the multiplier can prove challenging.
- Since a firm's profits are a more dependable predictor of its financial success than sales revenue is, the earnings multiplier may be used to provide a more accurate assessment of the true value of a company compared with the time's revenue technique. The method is used to assess how its share price compares with those of other businesses in a comparable industry. The earnings multiplier also displays the amount an investor will need to fork up for every dollar that the company makes.
- The most straightforward approach to valuing a corporation is market capitalization. It is calculated by multiplying the share price by the total number of shares outstanding.
- Book Value represents the worth of the shareholders' equity for a business. All liabilities of a company are subtracted from its total assets to arrive at the book value.
- The net cash that a company would get today if its liabilities were settled and its assets were liquidated is known as the liquidation value.
The list is not exhaustive, and there are several other approaches to valuing a business.
- Raising Funds: When you need to negotiate with banks or any other potential investors for capital, you often require an objective appraisal. For lenders to have more faith in you, professional proof of your company's value is often required.
- Strategic Planning: A depreciation schedule might not accurately reflect an asset's true value, and it might be problematic if the balance sheet hasn't been adjusted to account for numerous potential changes. You can make better business judgments if you have good information from a current business valuation.
- Exit Strategy: It is advisable to arrive at a base value for the business when there is a plan to sell it, and then develop a strategy to boost its profitability to raise its value as an exit strategy.
- Buying: Despite the fact that sellers and buyers typically have different perspectives about how much a firm is worth, the true business value is what purchasers are willing to pay. To determine whether the investment you are making is viable, a good company valuation service provider would include the state of the market, potential revenue, and other pertinent factors.
- Sale of a Business: If you want to sell your company or organisation to a third party, you must make sure you get the maximum worth. The asking price should be one that appeals to potential buyers while still not leaving money on the table.
We have helped businesses arrive at the accurate company and asset valuations across a wide range of industries. Our company valuation services include a comprehensive examination and critical evaluation of all vital aspects of a business. We are a Category 1 Merchant Banker with a pan India presence and an on-the-ground talent pool of 200+ professionals with extensive experience in Debt, Equity, Business Valuations, Structured Finance and Capital Markets.