Do you know\nthe value of your SME? Determining the value of a company is an exercise\nthat is generally considered in financing processes, capital increase,\nsearching for new investors or in sales or purchase of companies. <\/p>\n\n\n\n
But how do you do it?<\/p>\n\n\n\n
There are basically three valuation methods: discounting cash flows, applying multiples and calculating the liquidation value.\u00a0Transaction advisory services<\/a><\/strong> experts are going to focus on discounted cash flow valuation, or discounted cash flows, since it is the most common method and the most suitable for companies that generate positive cash flows.<\/p>\n\n\n\n What can be done to maximize the value of your company?<\/p>\n\n\n\n In general\nterms, the valuation is based mainly on three elements:<\/p>\n\n\n\n Below are five actions that will result in an improvement\nin the valuation of your company:<\/p>\n\n\n\n 1. Increase operating margin<\/p>\n\n\n\n Here, there\nare no secrets. The greater the ability to generate profits and cash\nflows, the better the valuation will be. The benefit is increased by\nincreasing sales and reducing costs. So, the questions (among others) that\nmust be asked to increase its margin are the following: does the company have\nassets – tangible or intangible – from which not all the value they could\ngenerate is obtained? What could be the additional sources of income with\na higher profit margin? Are there alternative distribution channels to\nsell your products? What has been proposed to consolidate your bargaining\npower vis-\u00e0-vis customers and suppliers? Is human capital motivated,\nfocused and working at its best performance? Is there potential for\nreducing structural costs that can increase business efficiency?<\/p>\n\n\n\n 2. Increase growth prospects<\/p>\n\n\n\n The growth\nrate of cash flows during the projection horizon is a determining factor in the\nvaluation of the company. Is your company putting barriers to entry in the\nsector or is it developing a competitive advantage? Are you investing in\ngrowth projects with high potential for generating value for the company? 3. Improve working capital or working capital<\/p>\n\n\n\n Cash flows,\ncalculated in the context of a valuation, depend not only on the profits\ngenerated but also on working capital. Reducing the need for working\ncapital will increase the generation of cash flows, and thus the value of the\ncompany. <\/p>\n\n\n\n Working capital management is a delicate matter, since it depends on the balance between risk and return.\u00a0It is about optimizing the need for working capital, reducing inventories, improving the collection period and deferring payments <\/a>on a recurring basis, without damaging the profitability of the company, without generating inventory breakage, without strangling suppliers, or worsen relationship with major customers!<\/p>\n\n\n\n 4. Refinance your debt<\/p>\n\n\n\n Is part of\nthe debt of your company higher than the interest rates offered in the\nmarket? Take advantage of today’s low interest rate environment to\nrefinance that debt! Launch a serious and rigorous negotiation exercise\nwith your financial institutions to explore ways of optimizing the cost of\nresources that they provide. 5. Optimize your financial structure<\/p>\n\n\n\n Your company’s value will peak when the cash flow discount rate is at its lowest.\u00a0This occurs when the debt level is at its optimum within the firm’s capital structure. Obviously, the potential for improvement of these five levers depends on each company and depends in turn on the evolution of its own economic environment.\u00a0In any case, acting on those levers does not have to be incompatible with corporate strategy.\u00a0On the contrary, transaction advisory services India follow a comprehensive strategy that considers all aspects and forces in action around the business, with the perspective of increasing the value of the company.<\/p>\n","protected":false},"excerpt":{"rendered":" Do you know the value of your SME? Determining the value of a company is an exercise that is generally considered in financing processes, capital increase, searching for new investors or in sales or purchase of companies. But how do you do it? There are basically three valuation methods: discounting cash flows, applying multiples and calculating…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[228],"tags":[],"class_list":["post-193","post","type-post","status-publish","format-standard","hentry","category-business-consulting-firm"],"_links":{"self":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts\/193","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/comments?post=193"}],"version-history":[{"count":2,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts\/193\/revisions"}],"predecessor-version":[{"id":5079,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts\/193\/revisions\/5079"}],"wp:attachment":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/media?parent=193"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/categories?post=193"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/tags?post=193"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nHaving additional growth engines logically increases the potential for cash\nflow generation, which will increase the value of the company.<\/p>\n\n\n\n
\nIt is important because reducing the cost of debt allows to reduce the discount\nrate of cash flows and increase the value of the company.<\/p>\n\n\n\n
Both above and below this optimal level of debt, the discount rate will be higher, and the value of the company consequently lower.\u00a0Why does this happen?
<\/a>On the one hand, because below this optimal level, the proportion of capital contributed by the shareholders is more important, and since the return demanded by the latter is higher, the discount rate will rise.\u00a0In this case, it is advisable to hire top business consulting firms in India<\/a><\/strong> to increase the value of firm.\u00a0On the other hand, because above this optimal level, the risk of insolvency is greater, which causes an increase in the return of shareholders and creditors, and therefore of the discount rate.\u00a0In this case, it will be convenient to reduce leverage to reach the optimal level of debt and optimize the value of your company.<\/p>\n\n\n\n