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Business Value
| Guest post by: Gerry Simpson |
Article Overview: Do you know what the business is worth?
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Free Download - Business Stress By Gerry Simpson |
Business Value
Corporate valuation is not a perfect science. Indeed, value is perception. Nevertheless, valuation exercises are done
with the objective of maximizing the growth of shareholder wealth.
One of the benefits of corporate valuation exercises is to determine how
best to raise capital. The best
financial solution is one that minimizes the cost of capital or increases the
value of equity. By conducting valuation
exercises, you would be better able to provide clients with advice on capital
and business structures and, of course, provide the ensuing financial structure
for expansion purposes, mergers, acquisitions, divestitures and
restructuring. For private companies,
valuation exercises are also important for estate and tax planning.
While a valuation exercise may help in determining what the best
financial strategy to adopt is, it will only give an indication of what the
value of the company is given the economic, financial and market conditions at
that point in time. For a publicly
traded company, the value of equity is also dependent on several factors,
including but not limited to, the liquidity of the stock, the control structure
and who the target buyer is. For a
private company, other factors will include family employment, additional
benefits, the control over the bonus and dividend policy and the mix of asset
ownership.
There are several valuation methods.
Asset valuation is a good starting point beginning with book value and
then moving on to replacement value, market value and liquidation value. Assessing the market value of the company as
a whole requires access to market data bases whereby a complete comparison of
similar companies is done through ratio analysis and industry rules of
thumb. The most straight forward,
effective and efficient method is the Discounted Cash Flow (DCF) method whereby
the present value of future cash flows is calculated.
The DCF method uncovers the intrinsic value of companies, particularly
in the case of highly cyclical situations, avoids the issues of interest rate
environment because the rates used in the model are long term rates, and
provides a risk adjusted appraisal as it uses expected rates of return. In short, it is a sound quantitative method
on which to base discussions around financial strategic planning.
The bottom line… know your bottom line and what your business is worth.
Fiscal planning will be a lot stronger.
Article Tags: assets, book value, valuation
Referred by: http://www.businessguide.net/
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About the Author: Gerry Simpson RSS for Gerry's articles - Visit Gerry's website Click here to visit Gerry's website   Business Value Business Stress Crisis Management Exit Strategy Leadership Does your business pass the Colin Powell test |
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