Business Valuation
…how companies arrive at mind-boggling figures
You have definitely come across articles and write-ups where a company was stated to be valued at, let’s say $1 billion or $2 per share you thought to yourself, “How did they arrive at that?”.
Valuation is the short answer.
Business valuation is the process of determining the economic value of a company. It is attempting to estimate the satisfaction a business’ service or good creates, which could be an aggregated value or broken down per unit (share price).
When a business decides to engage in the valuation process, it could be for various reasons. For example, a situation where a company is being acquired and the parent company wants to know the worth of the company to prevent underpaying or overpaying for the company. Valuations are also needed during listings, if a private company decides that it wants to be quoted on the stock exchange market, it would also need to conduct a proper valuation.
Back to how these numbers come about, companies consider several factors including unique assets of the company, its products, how much money it makes, how many people like its stuff, and how much money the company might make in the future. As simple as it sounds, there are several valuation methods you can spread across a scale of simple to complicated. A lot of effort goes into how realistic these numbers can get so that it can give an accurate picture of what a company is really worth.
To Learn
Valuations help measure the progress and success of a business and aid in comparison to other businesses in its industry. It is also essential in making strategic decisions useful for company growth and expansion. In the process of valuing a business, owners and investors are able to pinpoint how much value the impact of their service or goods is producing.
By comprehending valuation motives, exploring different methods and mastering key metrics, you are able to empower your business decisions and pave the way for prosperous growth.