Forms of Valuation
Valuations of a business are critical to investors, especially when equity investments are considered. Valuations of a business refers to a process of determining the value of a business at a point in time. It is often the market value or fair value of an enterprise. This may differ to a price paid for a business and or equity value.
When valuing a company, there are various forms of valuation techniques, with a focus on the two most widely used approaches.
Comparable Company Analysis
The Market Approach: This approach/method looks at data of comparable companies. Industry PE multiples or EBITDA multiples are most often used in this approach often from listed companies or from M&A activity. EBITDA relates to the sustainable earnings of a company which are determined by excluding finance charges, tax, and depreciation. The reason for this is to make it more comparable with other companies.
Discounted Cash Flows (DCF)
The Income Approach: This approach/method looks at discounted cash flows. The DCF model determines the future projected cash flows of the business based on growth, and then discounts it with an appropriately calculated weighted average cost of capital to determine the value of the business. The weighted average cost of capital (WACC) is important as it determines the level of risk, amongst other factors related to the cost of capital of the business.
The above listed methods are not the only methods, an example of another valuation method could be Book value or Net Asset Value.
At Discala Holdings, our valuation specialist is experienced in all valuation methods. Contact us to see how we can help you with your business valuations and upcoming projects.
#CorporateFinance #CompanyRestructuring #StartupCapitalRaising #StrategicPartnership #DiscalaHoldings #Growth
