Valuations: Management, Market and Technology

Posted on May 16, 2012 · Posted in Blog

Business valuations are required for many reasons including sales, mergers & acquisitions, stockholder disputes, corporation conversion, buy-sell agreement assessments, tax assessments, retirement planning, gift & estate taxes, divorce settlements, damage actions, and basic bookkeeping and accounting. Since the value of a business fluctuates over time, valuation reports are as of a specific date (e.g., the end of the accounting month, quarter or year).

When performing a comprehensive analysis of a company, numerous factors must be taken into account. In addition to quantifiable factors, non-quantifiable (or less-quantifiable) factors critical for an accurate valuation must be assessed. The analysis of these non-quantifiable factors is mainly based on the following:

  • The management
  • The market
  • The development of science and technology

These non-quantifiable factors are systematically evaluated, described and further developed to generate a comprehensive risk assessment that is used in the basis of the valuation.

Methods

Valuations are performed using a variety of widely accepted and proven methods, providing insight from differing perspectives. Methodologies most appropriate to the circumstances of the company are typically chosen or combined from the following:

  • Discounted cash flow (DCF) method
  • Capitalization of Earnings method
  • Book and Liquidation Value methods
  • Market comparable method
  • Comparable transactions method
  • Options methods


Comprehensive Valuation Report

Comprehensive Valuation Reports contain a detailed assessment of the company and its key value drivers:

  • assumptions and limitations used for the valuation
  • purpose of the valuation
  • an assessment of the company’s operating history
  • an assessment of the company’s products or services
  • an assessment of the management team
  • an analysis of the company’s business model in the current market environment
  • a summary of key risk factors and future potential
  • implications for further strategic development
  • value drivers for successful development of the company
  • calculation of the company’s value using universally accepted methodologies

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