To begin with, it is worth understanding in what cases a company valuation is required:
1. Buying / Selling a business
2. Sale of a share of the company
3. Raising equity/debt capital
4. Business reorganization (M&A, separation of firms, liquidation)
5. Conclusion of insurance contracts / occurrence of an insured event
There are various approaches to company/business valuation, it is of paramount importance to analyze the applicability of each of the methods for various practical situations.
In international theory and practice, three main approaches to assessing the value of a business are declared and used: profitable, costly, comparative.
In Russian practice, valuation activities are regulated by the Law on valuation activities and the Federal Valuation Standards (FSO).
In accordance with paragraph 13, paragraph 14, paragraph 15 of the FSO, the definition of assessment approaches is as follows:
The income approach is a set of methods for assessing the value of the appraisal object based on the determination of expected income from the use of the appraisal object.
Comparative approach is a set of methods for estimating the value of the appraised object, based on comparing the appraised object with objects that are analogues of the appraised object, for which information on prices is available.An object that is an analogue of the object of assessment for the purposes of assessment is an object that is similar to the object of assessment in terms of the main economic, material, technical and other characteristics that determine its value.
The cost approach is a set of methods for estimating the value of an appraised object based on determining the costs necessary to reproduce or replace the appraised object, taking into account depreciation and obsolescence. The costs of reproducing the appraisal object are the costs necessary to create an exact copy of the appraisal object using the materials and technologies used to create the appraisal object. The costs of replacing the object of assessment are the costs necessary to create a similar object using materials and technologies in use at the date of assessment.
In practice, several methods from different approaches are used for evaluation, which complement each other.And the final results are compared with each other to determine the final value of the value of the enterprise being valued.
What factors affect a company's value?
The external factor includes the investment environment, namely macroeconomic risks.The discount due to macro-risks in developing countries can reach 20-30%.
Internal factors include such important Aspects as corporate governance, team, business processes, finance.Internal corporate factors are the subject of close attention and verification in the due diligence process.
Special attention should be paid to the negotiation of the deal between the buyer and the seller, since the correct construction of a sales strategy, structuring the deal and eliminating risks can optimize up to 5% of the deal price.