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VALUATION
There are a
few other forms of analysis that may be utilized in determining
the fair market value of a company.
Typically, it is a combination of one, or more of these
methods. Certainly
market conditions are also always a factor.
Prior to a final offer, most buyers of businesses will
solicit, and have a professional firm render a Valuation
Opinion.
Valuation
Opinion
UBA can
prepare a comprehensive opinion of a company’s fair market
value. The opinion
will discuss the selection and calculation of methods and
multiples, it offers detailed information regarding comparable
companies and transactions, and relates the conclusions of the
valuation firm’s due diligence reviewed for market value on
both an aggregate basis and a per-share basis.
The opinion
drafted by UBA, or other professional firms, will give a
detailed presentation which demonstrates the findings and
conclusions of the analysis to the concerned parties.
There are
several methods used to value companies.
Typically a combination of methods is used to come to a
definitive valuation. And,
keep in mind…the valuation ultimately is in the “mind of the
beholder”.
Here are a
few of the methodologies employed:
Replacement
Cost Analysis
Generally,
the value of a company does not relate to the value of replacing
the assets of the company.
Sometimes the replacement value of the property, plant
and/or equipment is far higher than the fair market value of the
operating business. Sometimes
the value of “items” such as customer relations, corporate
logo, and technical expertise are far higher than the
replacement value of the PP&E.
Of course, an
investor will often consider capacity utilization, location,
environmental and legal issues among other things in determining
where and how to invest. These
may outweigh the importance of the replacement cost analysis.
Asset
Appraisal Analysis
It is
generally possible to liquidate the PP&E assets of a
company, and after paying a company’s liabilities, the net
proceeds would accrue to the equity of the company.
However, even
when assuming an orderly liquidation of a company, it is
generally true that an operating company will be of
substantially higher value.
It is not appropriate to use an appraisal approach in
this case because the company is operating successfully.
In this circumstance, the industry in which the company
operates will appraise the company’s fair market value at a
rate above the value of its assets on a liquidated basis.
Discounted
Cash Flow Analysis
Another
determinant in a company’s value is the anticipated cash flow.
Discounted analysis is a valuation method that isolates a
company’s projected cash flow – at what level it services
debt, and then provides a return to equity; the net present
value of this free cash flow is computed over a projected period
based on the perceived risk of achieving such as to take into
account the time value of capital it is typically appropriate to
value these cash flows using a discounted cash flow approach.
Comparable
Public Company Analysis
The fair
market value of public companies is determined every day through
the demand by many buyers and sellers of its publicly traded
securities. These
minority interests can easily be determined and can be adjusted
for control premiums. Since
there are public companies that are similar to any given private
company, the fair market value of comparable companies can
generally be compared to private companies.
These
comparable companies often are different in size and performance
to a targeted private company – so, used are comparisons in
revenue/cash flow/assets. This
comparison generally results in the creation of a “multiple”
that can then be applied to the same performance measure of the
private company.
Comparable
Transactions Analysis
A company
that has recently sold all or a large portion of its equity
provides an important indication of value. Its performance indicators can be used as a benchmark for a
similar company to measure its fair market value against.
There are a
few other forms of analysis that may be utilized in determining
the fair market value of a company.
Typically, it is a combination of one, or more of these
methods. Certainly
market conditions are also always a factor.
Prior to a final offer, most buyers of businesses will
solicit, and have a professional firm render a Valuation
Opinion.
Valuation
Opinion
UBA can
prepare a comprehensive opinion of a company’s fair market
value. The opinion
will discuss the selection and calculation of methods and
multiples, it offers detailed information regarding comparable
companies and transactions, and relates the conclusions of the
valuation firm’s due diligence reviewed for market value on
both an aggregate basis and a per-share basis.
The opinion
drafted by UBA, or other professional firms, will give a
detailed presentation which demonstrates the findings and
conclusions of the analysis to the concerned parties.
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