How Is The Valuation Of A Company Done?

A company valuation measures the environment and everything that a business includes including fixed/current assets, liabilities, brand, personnel, technology, etc. That is, the entire environment in technical and economic matter of the same.

Specifically, it is the economic capacity that a business has to generate cash flow or profits in the future, it must have long-term growth in its projection and an expected return due to internal and external factors that reflect the operation, environment and virtues of the company itself.

How to do the valuation of a company?

The valuation of companies usually requires the intervention of multidisciplinary groups, depending on the type of business it can be listed mainly: financial, economists, actuaries, legal, fiscal and in some sectors technological and environmental experts.

There are 2 business valuation methods that are usually the most popular:

  • Discounted Flows
  • Multiples

The valuation process can vary, but usually begins with a due diligence and profile creation.

Later, a preliminary financial analysis is made which will help to shape the development of a unique financial model according to the own needs arising during the analysis of the previous and subsequent points and once the financial model has been concluded, the results and conclusions are interpreted.

What is the purpose of business valuation?

Find accurate ways and means that identify, measure the economic/operational relationship of a company based on current and future business conditions in a set of internal and external factors.

An analysis of administrative, legal,  financial, commercial, operational and market characteristics, profile of products and services,  the market opportunities and limitations offered by the company itself, strengths and weaknesses must be made,

When carrying out the convergence process, some organizations find themselves in the dilemma of whether or not it is necessary and important to carry out appraisals to determine the real value of the goods that make up their assets.

When the asset’s book value is close to its real value, the book value can be kept, but if both values ​​are too far from each other, it is best for the company to recognize the fair value with the help of fixed asset register (FAR) preparation, since the financial statement must present the economic reality of the assets.

The difference in criteria in this matter between the management and the accounting professional, mediates the administrative tension, since many leaders consider that increasing the value of their assets leads to a higher payment of taxes.

Intangible assets and fixed assets are the basis of the work of any company, which is why it is always necessary to approach the issue of fixed asset valuation of an enterprise with special care and attention.

It is the main funds of the organization that form the opportunities for using the full potential of the company and its stable development.

More and more companies require integrated services to identify and know the true value of their fixed assets. It is a requirement to support financial, accounting, tax and insurance reports, and for decision-making in a company in case of technological update, purchase, sale and business merger.

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