«What is the value of my company?». This is a common question asked by those seeking information for multiple purposes, such as estate planning, negotiations with a potential buyer, retirement, access to finance or accounting purposes, among others.
The valuation of a company is a fundamental financial metric that determines the monetary value of a company, reflecting its overall economic condition and future growth potential.
The process of valuing a company involves a comprehensive assessment of its assets, liabilities, earnings and market position to determine its intrinsic value.
Accounting valuation of a company
Book value, or net book value, reflects how much a company or asset is worth according to its financial statements. It is obtained by subtracting liabilities from total tangible assets, showing the surplus of assets over debts.
It is an initial and accessible measure for valuing companies, although it is limited by the fact that it is based on historical values that do not always reflect current reality.
It analyses the value of the company's assets on paper, based on their historical baskets. It does not take into account any appreciation or depreciation that may have occurred since then.
This indicator is useful for comparing companies and identifying opportunities through the price-to-book ratio (P/BV).
However, it does not consider intangible assets as intellectual property, The usefulness of these products decreases in sectors where they have a significant weight.
How to value a company?
There are several valuation methods for calculating the value of a company, each of which serves a different purpose and provides unique information.
Valuation methods
In practice, there are several methods of valuing holdings and businesses, the most commonly used being the following:
Discounted cash flow (DCF)
It is undoubtedly the most widely used method for company valuation due to its rigour and analytical capacity. From this approach, the value of the company corresponds to the updating of the net cash flows available to the operation to remunerate its own and external capital, once taxes have been paid and the capital investments required to maintain the operation have been made.
Analysis of multiples of similar businesses
This valuation technique is attractive because of its apparent simplicity and ease of application. It assumes that stock markets are somewhat efficient and capture all available information about businesses in their market prices. Therefore, most of the valuation work has already been done by the market and the main drawback is to select a group of companies that are comparable to the one to be valued and that are also listed on the stock exchange.
Analysis of multiples of similar transactions
Analysis of prices at which deals have been concluded for businesses in the same industry or sector can provide information on the range of values at which to set the valuation of the business.
Adjusted net asset value with unrealised capital gains
This is the value that a buyer would be willing to pay for all the assets that the company owns at market value, or that the buyer would obtain by selling the company's assets also at market value. This market value of the assets, together with the accounting adjustments that can be made to the actual equity of the company, would give the economic value of the company. This method is frequently used in companies with significant fixed assets (securities or real estate portfolios) for which the forecast of future cash flows is much less predictable and adjustable in time.
Company valuation ebitda
The EBITDA multiple applied to a particular private company depends on a potential buyer's view of its risk-return profile.
The appropriate EBITDA multiple to calculate enterprise value depends on many factors, such as the level of customer concentration, company and industry growth rates, supplier concentration, competitive position, profit margins, company size and the depth and strength of the management team.
These factors must be assessed individually and considered in their totality when valuing private companies.
Assessment criteria
The fair value of a company is determined by professional valuers following an established methodology.
According to IFRS 13 Fair Value Measurement the main valuation techniques for all assets are based on three general approaches, cost, market and income (appendices B5 to B30), which are in line with the International Valuation Standards issued by the IVSC (International Valuation Standards Committee).
Company cash flow valuation
As described above, the Discounted Cash Flows is a dynamic valuation method. which is based on the study of the historical past of the business and the corresponding predetermination of certain variables, through the assumption of various parameters, to obtain a financial projection of the future economic activity of the operation.
The aim is to make the most accurate projection of future profits derived from the economic activity resulting from the combination of the company's assets and current and potential market positioning.
Valuation of a company's shares
Equity valuation uses quantitative techniques to assess the value of a company through its shares. The value of shares depends on market demand and supply, so there can be large differences in share valuations in different periods.
Market capitalisation is one of the simplest measures of the value of a listed company. It is calculated by multiplying the total number of shares by the current share price.
Market capitalisation = Share price x Total number of shares.
Having an independent real estate advisor in the asset valuation process, as well as in the valuation of companies, is key to provide solvency and transparency, to give the greatest comfort and to generate confidence in the eyes of the regulator, investors and owners.
Valuation of a company for sale
Undertaking an assessment is an excellent opportunity to assessing financial health and the potential of the company itself or of a company to be acquired.
Although the most common reasons for valuing a company are to seek financing or to sell it, being aware of its value on an ongoing basis facilitates professional management and better decision making.
Business valuation provides a data-driven estimate of value, guides in setting a realistic selling price and strengthens the negotiating position during the sale process.
Risk assessment of a company
Companies use risk assessment to uncover trends and weaknesses in their business and obtain key information to proactively work on a solution.
A financial risk assessment helps to identify critical areas, reinforce strengths and detect opportunities for growth. It is not only about preventing problems, but also about ensuring that every strategic decision has a sound basis.
What can happen if these risks are not assessed?
- Errors in balance sheets and accounts that may affect financial stability.
- Lack of internal controls leading to unnecessary losses.
- Missing opportunities by not having a clear strategic plan.
On the other hand, good analysis can be the key to scaling up a business and making confident decisions.
Company valuation report
To obtain a sound valuation of a company, it is important to hire a professional to objectively analyse the information, both quantitative and qualitative, to arrive at a value.
Gesvalt has developed company valuation reports in different areas, providing objectivity, rigour and market knowledge. Our certified team analyses each asset with the highest national and international standards, guaranteeing transparency and reliability.
Example Company valuation
Whether for mergers, acquisitions, audits or investment strategies, accurate valuation makes a difference in decision making.
Example of company valuation:
Valuation of companies in the tourism sector.
Valuation of companies in the industrial sector.
Company valuation in the pharmaceutical sector.
Conclusions
Company valuations are complex calculations involving the assessment of a company's assets, liabilities, net profit and loss and possible future projections.
A professional valuer has the expertise to assess these factors in order to calculate a realistic selling price for your business. .
At Gesvalt, we specialise in offering valuations with maximum objectivity and transparency, guaranteeing that each analysis complies with national and international standards. Our sector and market knowledge allows us to provide key information for strategic decision-making.
Gesvalt Advisory Services has a qualified team with CIIA, CEFA, CEVE and RICS certifications, specialising in finance, risk, audit and taxation. Our experience and technical rigour make us the ideal strategic partner to guarantee the security and growth of your business.