How to calculate and evaluate the value of a company

A question that is always hovering in the minds of entrepreneurs is: “How much is my company worth?”. And although it may seem like something simple to answer, measuring the real value of a company demands a study and evaluation of some business factors.

Normally, entrepreneurs seek to know the value of their company when they are faced with the need to include another partner, sell shares in their business or seek investment contributions from third parties. This process of evaluating the value of a company is called valuation and there are several ways to perform this calculation.

Generally, business owners are advised to look to professionals or companies for financial analysis and forecasting. In addition to greater credibility, the process of how to value a company can involve complex mathematics and difficult predictions for those who are not used to this type of analysis.

What is valuation?

The valuation of companies is a calculation that aims to evaluate the estimated value of the company. This method is not done through guesswork or intuition, so there are a number of methodologies to be applied to make this estimate more accurate. It considers the current value of the organization’s assets and intangibles.

Valuation is a very rich and expansive field, and it is necessary for today’s entrepreneurs to understand it because of its many benefits to their companies. It’s not that simple, but it’s worth knowing more about it. In addition, knowing these techniques helps the investor to be in a good position to know if he has a good deal in sight.

Methods that are used to calculate the value of a company (valuation)

Discounted cash flow

The method most used by the market is the so-called “discounted cash flow”. This analysis predicts how much free cash flow a company will generate in the coming years and converts these cash flows into present value, minus the inherent risks of each business.

It is essential that this work is performed by an experienced professional who knows the business, the market and has a solid foundation in finance. Wrong assumptions, fictitious projections will bring a totally arbitrary valuation to the company.

market multiples

The calculation of the “market multiple” takes into account the economic performance of a company and compares it with other companies in the sector. From this, the expected return is predicted.

It is widely used to assess the value of public (public) companies.

equity value

Basically, what defines the value of a company is the equity valuation. This means that the calculation is based on the accumulated equity of the business, derived from the sum of all its assets.

This math takes into account the net worth that the company has generated since its inception.

PreValor and the “uncomplicated” valuation

PreValor, a valuation company, emerged as an alternative to simplify and relieve the valuation process for startups and small companies. The entire data delivery process for the production of company value assessment reports is done digitally. After this step, the information is evaluated by the PreValor algorithms, which quickly deliver a document with information with a high degree of reliability. The platform also has a personalized service in case the service contractor has any questions or wants to address any specificity of your business.

To learn more about PreValor, visit: prevalor.com.br