Whether you are looking to sell your business or simply want to understand what it is worth to help you make more effective decisions in the future, getting a valuation valuing reorganization on a regular basis can empower you with more insight into your performance and what you need to do moving forward. This understanding can help you make it the best version of itself—and, by extension, you.
As a business owner, you have a range of business valuation methods at your disposal to determine the value of your business. This post will explore some of them, equipping you with the knowledge you need to make informed decisions about your business’s worth.
Here are three business valuation methods:
1. Discounted Cash Flows
Referred to in some circles as the “gold standard” of valuation, discounted cash flow estimates the value based on money or cash flow. It calculates the present value of future cash flows based on the analysis’s discount rate and time period.
It looks a bit like this: discounted cash = terminal cash flow/ (1+ cost of capital) # number of years in the future. Here, the ‘discount rate’ is the rate used to discount future cash flows to their present value, and the ‘time period’ is the number of years into the future for which you want to calculate the present value of cash flows.
This is often the preferred method of evaluating a company because it will reflect its ability to generate liquid assets. This figure is a great one to have if you’re considering selling and are consulting business advisors, as it will accurately represent your company’s value, enabling you to sell it for a fair price.
2. Market Capitalisation
To get the market capitalization of a publicly traded business, you need to multiply the share price by the total number of shares. It’s a quick and easy calculator if you have this information; however, it only concerns the value of the equity and doesn’t take into consideration any debt.
3. Enterprise Value
To get your business’s enterprise value, you need to add the company’s debt to its equity. Once you have this figure, you subtract the cash amount not used to fund business operations.
These are 3 of the morue commonly used business valuation methods you can use to help you uncover the value of your business, whether you want to see how well you’re doing, you’re planning to sell up, or you are simply trying to find the best way to understand the value of your company. If you have any questions, you can talk to an expert who can help you carry out the correct calculation for peace of mind.
