There is no doubt that the most common question asked during company acquisitions is: “How much is the business actually worth?” The need for business valuation can be triggered by many other factors too. Selecting the right method for a business valuation is also part of our task, and this largely depends on the objective that set the whole business valuation process in motion.
What situations can give rise to the need for determining a company’s value?
- It is a good idea for a company’s owners to be aware of their firm’s value when selling shares/business interests.
- During the acquisition of a company, the purchase price depends on the negotiations between the parties. It is important for the buyer to weigh up the actual value of the business too, which frequently differs of course from the purchase price eventually agreed on.
- Tax aspects can be the reason for defining an arm’s length price during the sale/purchase of a company within a group. In this case, when preparing transfer pricing documentation it must be proven that an independent third party would also have been willing to pay this price for the company, and the price was not merely set for the purposes of saving tax.
- When buying a company, IFRS dictates that the purchase price must be broken down into its constituent parts. Here, the valuation is carried out under the IFRS 3 Purchase Price Allocation method.
- Assessing a company’s value can be vital for start-up enterprises when bringing in external capital.
- The need for a valuation can also arise when selling a business division.
Methods for business valuation
For our professionals to assess what the best valuation method is in the given situation, they interview the management to learn about the company, its activity, its market opportunities and risks as thoroughly as possible. When requesting, processing and evaluating the information required for the chosen valuation method we regularly consult with the management of the company being valued so that the information obtained is represented as authentically as possible.
The valuation methods used most frequently are the following:
- DCF method
- book value method (accounting approach)
- comparable valuation
The discounted cash flow method (DCF) is based on future business plans and cash-flow plans, and determines the present value of future cash flows with due consideration of market risks.
The book value method is essentially based on the company’s equity. The objective is to determine the value of equity adjusted to market value by identifying hidden reserves in assets as well as any off-balance sheet assets and liabilities.
The comparables approach is based on market data. This procedure is carried out by querying and evaluating comparative figures from databases.
Our specialists have substantial industry know-how and considerable valuation experience that they put to use for clients in carrying out complex valuation tasks.