Valuation is a technique used to capture the true value of the business. Common approaches used in business valuation include Discounted Cash Flow (DCF), Trading Comparables, and Transaction Comparables method.
Business Valuation is necessary for various purposes.
Sale of the
Raising funds from
VC or IPO
Issue of stock to
There are three common approaches for valuing a business.
A method to estimate the fair value of a company/business based on future cash flows. The DCF analysis finds the present value of expected future cash flows using a discount rate. This discount rate used is the appropriate Weighted Average Cost of Capital (WACC) that reflects the risk of the cash flows.
At any given time, stock prices normally reflect all available information on a particular company and industry. Hence, trading companies provide the best estimate for valuing a similar company. Based on the average multiples such as P/E, EV/EBITDA, EV/Sales, P/B, etc. calculated for all the companies similar to the one being valued, the same is used to calculate its enterprise value.
The method is widely used to value a company during an acquisition. Similar to the above methods, but the comparables consists of companies that have previously undergone a takeover. In takeovers, the buyer pays a control premium, hence the company is valued at a higher rate.
To quickly estimate your company’s worth or another company which you are interested in investing,
go to our free online valuation tool.
For more detailed valuation report using all three methods –
trading comparables, transaction comparables, and discounted cash flow valuation, contact us.