What is Business Calculus?
What is a company valuation?
By valuation of a company we refer to the set of processes and analyzes aimed at determining the economic value of a company. It is, therefore, about analyzing the quantitative and qualitative characteristics of a company and translating them into a monetary expression, in some cases it is the law itself that requires the evaluation of a company, in other cases, dapps development company it is a voluntary operation that is carried out to pursue certain business goals. The result of the evaluation of the company will be a range of values within which to presume the real economic or shareholder value of the company, as real and objective as possible.
What is a company valuation for?
In recent decades, the valuation of companies has become an essential component for entrepreneurs, managers and financial operators. It is of great importance to know the value of a company in mergers, acquisitions , listings in financial markets, investments in the venture capital of unlisted companies, to make the best decision in strategic choices for companies and companies. Likewise, the valuation of a company is necessary when you want to look for new partners / investors or request loans or financing from banks. When an investor looks for alternatives to place his money, it is convenient for him to know the potential of a company in which to invest.
The difference between value and price:
The economic value of a company is the amount for which the capital can be bought or sold . It is the result of several estimates and is not a single figure, but can be used for the purpose, conditions and time in which the estimate is determined.
Among the variables that, from the value, allow the determination of the price , Future in virtual world are external variables such as:
- Rigidity or fluidity of social capital;
- Efficiency of financial markets;
- Venture capital supply/demand cycle;
- Ongoing concentration processes in the sector.
Then there are the internal variables like:
- More or less transparent and effective communications;
- Implementation of credible business strategies;
- Revenue credibility.
5 Methods to Value a Company
Learn how the value of a company is calculated through these 5 methods:
1.Book value
The book value of a company indicates the value of this company in accounting or tangible terms, since it reflects its balance sheet.
The process of calculating the book value of a company is quite simple, it is only necessary to take the total balance of the assets of the company and subtract the liabilities .
Once the book value is known, the value of each share or participation can be determined. This is accomplished by dividing the book value by the number of shares or interests.
2.liquidation value
The liquidation value of a company corresponds to the sum of the individual parts of the company on a given reference date.
Individual assets, such as property, machinery, inventories, etc. are valued at realistic market prices. The company’s debts and mandatory provisions are then deducted, as well as liquidation costs.
However, since the liquidation value corresponds to the minimum value of a company , it should only be taken into account if it is lower than the values of the other valuation methods, since in this case the maintenance of the company no longer makes sense.
The multiple of sales
This method is often used in the field of company acquisitions and mergers. It allows checking if the purchase price of the company to be evaluated is realistic.
It is based on the purchase prices recently offered by similar companies that have already been sold. It is necessary to evaluate for which multiple of the profit or turnover the companies that are taken in comparison have been sold , and the same factor must be applied to the company to be evaluated.
Of all the useful methods for evaluating a company, this one is particularly suitable for companies that have been around for some time, for which it is possible to base the evaluation on the earnings trend over several years.
The value of benefits (PER)
Through this method, the relationship between the share price and earnings per share is measured. It refers to the total number of times that the profit is contained in the price of a share .
In other words, a PER of 5 means that the initial investment will only pay for itself after five years of accumulated benefits.
The PER reflects the valuation of a company with respect to its sector or also with a historical average. When the company is valued through this index, decentralized application development it must be taken into consideration that a low index does not always mean that the company is cheap: it may happen that the market is taking for granted that its profits are going to fall abruptly in the future. future, which could be a trap for the company.
The value of dividends
This method to know how the value of a company is calculated takes into account an indicator that is obtained by dividing the dividend per share by the last price of the share.
Therefore, the higher, the better. If you invest in a company that has a dividend yield of 8%, it means that we will only receive 8% of the dividend payment .
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