Corporate value / BUSINESS VALUATION

The value of a company is determined by several factors together. The value of a company is based on an estimate, it tries to price the risks and opportunities inherent in the company, so it always contains subjective elements. Most of the time, the value of a company is not a number, but an interval.

The value of a company value shows what value a given business can have under certain circumstances and conditions. (However, it is a fact that in the end the company is worth as much as the customer is willing to pay for it.)

A wide variety of aspects can and should be taken into account when determining the value of a company. The first step in establishing the company's value of a company is screening the company, identifying its potential and risks. The zeroth criterion of the evaluation is the breakdown and detail in which the seller provides the necessary data. (Value of a company is destroyed to the greatest extent by loss of trust, so a lot depends on the preparation of an exit.) It is also a zero criterion for the company to have more than one prospective buyer, because without competition, the market price will not change. 

In general, it can be said that the basis of the evaluation is a relatively exact number based on factual data, but which can be determined in several ways, which can then be deflected in a positive or negative direction by numerous other subjective and less subjective factors.

There are basically two directions for determining the exact number based on facts. One is income approach appraisal, that is, the valuation method based on profits. Here, the investor wants to know how long his invested money will pay off. For this, the EBITDA indicator is most often used, on the basis of which companies within the same industry can be easily compared. The company's value is given by EBITDA and a multiplier, the latter showing how many years of profit the buyer is willing to pay. 

The other main valuation method is asset-based valuation. It is possible that the business cannot generate a profit, in which case income approach appraisal cannot be applied. Asset-based valuation is based on the assumption that if the company were to theoretically stop operating at a given moment, how much could be received for its assets. This includes not only inventories, real estate, tangible assets, but also patents, know-how, sales channels, and databases. Here, it is not the value in the books that matters, but the market value of the asset.

As for goodwill as the circumstances deviating from the actual figures, the prospective buyers examine the company's history, past, image, sectoral and country risk factors, the labor market and the competitive situation. 

Among these factors, two stand out, which are expedient and worth paying attention to. One is a matter of trends. A company with increasing profitability can always be sold at a better price than a company with the same profitability rate, which, however, performed even better a year earlier, so the right time to sell is the rising branch. 

The market share, the number of customers and its trend are also important, especially if a professional investor is interested in the company. The professional investor usually wants to buy a company whose turnover can significantly increase the sales of his own company. 

Determining the value of a company in the light of all this is by no means an exact operation, as a seller we can do a lot to increase the eventually emerging market price, and as a buyer to reduce the risks inherent in the price.