Thoughts, observations and insights

Talking You Through the Company Valuation Process

How do you go about getting the true and fair market value of a business? Whether you’re buying or selling (or investing, insuring or advising!), valuing a company can be a complex and lengthy process, so here’s a more detailed explanation of how it all works. 

 

Valuation Methodologies: The Pros and Cons

When it comes to valuing a business, there are several methodologies you could use. Each methodology is different, with distinct advantages and disadvantages that may make them more suited to certain scenarios.

 

Understanding Business Valuation: Why do we need it?

2019 is an interesting time in the world’s economy. Why? Well, the wealthiest generation in American history needs to pass down its riches (around $68 trillion to be precise*) – which is rather a lot of money to move around. Many Baby Boomers (those born between 1946 and 1964) are reaching either the end of their working careers – or the end of their lives. For this reason, an estimated 70 million people in the US alone** are needing to sell their businesses and bequeath their assets to their Gen X and Millennial heirs.

 

Understanding WACC: Let’s Break it Down

You may recall from our valuation methodology or time value of money blog posts that our primary valuation technique – the Discounted Cash Flow (DCF) method – relies on a Discount Rate. Although there are good reasons to use (or at least test!) other rates, the appropriate Discount Rate to use for a DCF is often the company’s weighted average cost of capital or “WACC”.

 

Challenges with Valuing Young Companies

Valuing young companies is a difficult task. Because a new company is early on in its lifecycle, it can be hard to project what it will be worth in future – especially when it has no established products or services yet. So, how do you go about valuing it accurately?

 

Enterprise Value vs. Equity Value: What’s the Difference?

When it comes to valuing a company, it’s crucial to understand the difference between equity value and enterprise value. At their simplest, the two concepts can be defined as follows: