Business valuation tips, updates and advice. Pick up a few suggestions on how to value a business. Feel free to browse the contents or share your thoughts by leaving a comment.
Take a look at a typical business valuation and you will see a discussion of discount and capitalization rates. These are often confused with each other, usually because capitalization is a special form of discounting in valuation. Capitalization of business earnings is very common. The idea is to use the expected economic benefit for a… Continue Reading
Risk and return go hand in hand when it comes to valuing a business. Every company must be able to attract and retain the needed capital in order to continue. The cost of capital is thus an important input in your business valuation. Beta and systematic business risk Beta, a key element of the capital… Continue Reading
The questions of risk and return are at the foundation of business value. Think about it: if you are putting your hard earned money into an investment, you would like to see a handsome return. But there is no guarantee. In fact, depending on the investment, you could get the return you expect, get more… Continue Reading
Some businesses like secure long term contracts that ensure continued revenue streams far into the future. What is the effect of such contracts on business value? The answer is twofold. First, the contractually guaranteed revenue stream reduces business risk. You essentially have a very good idea of what the earnings from such a contract will… Continue Reading
By established convention, appraisers value companies on the business enterprise value basis. For publicly traded companies, this is the sum of the shareholders’ equity, less cash or cash equivalents, and the total value of debt. This represents the current value of the company regardless of the capital structure. In other words, the levels of debt… Continue Reading
Business people are sold on the usefulness of financial statement projections for company financial management purposes. Pro forma financials are the staple of corporate financial analysis. In addition, these pro forma projections form the basis for credit analysis and estimation of how much debt or equity financing the firm will need in the future. You… Continue Reading
You can value the entire business and calculate its value which includes all of its assets. This brings up a question, do individual business assets have value on their own? The answer depends upon the reason for valuation. Consider, as an example, a piece of machinery the business uses to produce its products. Chances are… Continue Reading
Let’s face it, when there is a profit motive in business, someone will rise up to the challenge and grab the prize. Alas, ethics sometimes takes second place. You may have seen it – the hype about the web services claiming to be the world’s salvation from every ill. No more IT overhead, it works… Continue Reading
Did you know that businesses in the USA alone spend billions of dollars on appraisals every year? They need to do so for a diverse number of reasons: getting a loan against business assets, selling or buying a business, to obtain insurance or in cases of legal dispute. It would seem at first that the… Continue Reading
Historically, some 7% of all downloaded and Web based software contained malware. While the numbers have declined somewhat in recent years, the attacks have grown a lot more sophisticated. Every vulnerability is sure to be exploited by cyber criminals who seek to compromise both government and corporate websites and software systems. Business valuations access mission… Continue Reading
You may wonder: if professional business appraisals follow standards, such as the USPAP (Uniform Standards of Professional Appraisal Practice), why do the results often differ so much? The reality is that behind every business valuation is a client who expects a certain result. Business appraisals are done for a reason. Take, for example, the typical… Continue Reading
Imagine, you are looking at an impressive, theoretically correct business valuation. No expense spared. Sharp analysis. Using the standard approaches. But this does not mean that the business will sell at the price that matches its value. Fair market value rarely equals the selling price in the real world The reason is that the fair… Continue Reading
Market approach to business valuation has a lot of appeal – it offers evidence directly from the market place where the actual business buyers and sellers negotiate company selling prices. If you get hold of enough sales data, the reasoning goes, you should be able to estimate the value of a similar business. The market… Continue Reading
As we talked about in an earlier post, employee stock ownership plans, or ESOPs, keep gaining in popularity as a cost effective way to transfer ownership to the company’s employees. Key elements of a successful ESOP But not every company makes a good candidate for an ESOP. Before taking the plunge, consider some key questions… Continue Reading
If you are valuing a small business, you have run across the need to establish the discount rate. You do this as part of risk assessment, a key element in any business valuation. In addition to the well known Build-Up model, you also have the capital asset pricing model, or CAPM, to calculate the discount… Continue Reading