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Business Valuation is a phenomenon to estimate the true value of the owner’s interest in the business in economic terms. The same is done by the financial participants to know the accurate price or value while they are willing to sell or purchase the business.
Need of Business Valuation
Several business tools are used to do business valuations to resolve disputes, litigations, separations, shareholder’s deadlock and estate contests. In addition, the business valuations are also used to determine the value for Mergers and Acquisitions, Disinvestment, & Corporate Takeovers, Fresh Loans from banks and other financial institutions, Structuring and restructuring of bank loans, new investments, real estate project valuations, business take-over, buyouts and so on. This not only helps to determine the present status but also the future prospects of a company, which in turn provides an understanding of how the corporate value & shareholders’ wealth could be maximized.
Understanding the Reasons of Valuation
Before any valuation is done, the reasons and circumstances for the assignment should be well known. These are formally known as the business value standard and premise of value.
Standards of Value is the hypothetical condition under which the business should be valued (Key parameters: Fair Market Value, Investment Value and Intrinsic Value ).
Premise of value relates to the assumption that the business will continue as going hassle, or that the value of a business lies from the sales of all the assets minus related debt) Fair Value in case of Orderly disposal, Liquidation or Assemblage of Assets ).
What are the Main Approaches for Valuation?
Apart from the key element of analysing the financial statements thoroughly, the three different approaches commonly used in business valuation are: 1.) Income Approach, 2.) Asset-based Approach, 3.) Market Approach
Generally, the income approach determines value by calculating the net present value of the discounted cash flow of the business. The asset-based approach determines value by adding the sum of the parts of the business (net asset value). The market approach determines value by comparing the subject company to other companies in the same industry, of the same size, and/or within the same region.
Understanding the Methods of Valuation
The most common methods/techniques used in the income approach are:
1. Capitalization of maintainable earrings; and
2. Discounted cash flow (DCF)
We believe that the DCF method would be the most appropriate method to value your business due to the following reasons:
• Historical results may not be indicative of its future earnings
• New alliances with partners
• New expansion plan with potential growth of the group
A valuation based on the DCF method requires the determination of the following parameters:
• Free cash flow to the company
• Discount rate
• Terminal value or Residual value
We would adopt the Future Earning/Income-based approach comprising discounting cash flow (DCF) as a technique to value your company/business.
How Fundforth can help in Business Valuation?
Fundforth Accounting Services is a leading financial consultancy in Dubai, UAE serving global and international client by providing business valuation in Dubai and company valuation in Dubai. As a consultant, we provide you with all the assistance that you need to calculate the intrinsic value of your business, using various financial methods, such as net asset value and discounted cash flows method, based on assumptions/factors beyond the number data. We support our assumptions with the given industry data and conclusions from extensive market research. Our team of analysts has the required experience of estimating the value of companies spread across different industries.