Corporate Valuation Methods: Unveiling the True Worth of Business Entities

Posted on Jul 25, 2023 at 10:07 PM

Corporate valuation methods are essential for any business in any industry; thus, knowing and using them effectively based on your business's requirements is critical for your success and income growth.

Remember that there are never two businesses with the same monetary value, revenue, or market share; therefore, corporate valuation methods are needed to analyse your company's earnings, income, investment cost, and assets within the market based on vital economic techniques.

This article will share robust information about corporate valuation methods and why you need them. Moreover, teach you the best ways to conduct a firm business valuation.

What Are Corporate Valuation Methods?

Let us start with the corporate valuation or business valuation; it is the process of determining the actual value of a business in the targeted market, or in general, this calculation commonly focuses on cash value, relevant earnings, and assets to help companies in strategic financial planning.

On the other hand, corporate valuation methods are used to study and analyse the corporate value in the market based on critical multiple values.

Why Do You Need Corporate Valuation Methods?

For sure, you are wondering why you would need to do corporate valuation methods in the first place; thus, now we are going to include the cited reasons to use business valuation methods:

When planning to sell your business.
If you are searching for investors, business financing, or considering adding shareholders.
For establishing partner ownership percentages.
When looking to acquire another company or estate transactions purpose.

6 Simplest Methods of Corporate Valuation:

Now, we will determine the most common and practical approaches to corporate valuation analysis.

One more thing, all of these approaches are approved by professional finance short courses in London:

Market Capitalisation Method:

The market capitalisation method, or market capitalisation, is the most accessible valuation approach. This approach shares the company's relative size and ROI with interested investors and shareholders.

You can calculate the market capitalisation by multiplying the corporate's share price by its sum number of outstanding shares.

Earning Multiplier Method:

One of the most used corporate evaluation methods, the earning multiplier methodology, gives business owners a more accurate and deeper insight into the actual value of their corporates based on cash income or earnings.

You can calculate earning multiplier by adjusting future profits against the cash flow that could be invested at the current interest rate over an equal period.

Book Value Method:

An excellent corporate valuation method for businesses with low expected profits comparable to the asset values in the market. This method's value is calculated by subtracting a company's total liabilities from its assets.

The book valuation method shares shareholders' equity of a business as shown on the corporate public balance sheet statement.

Discounted Cash Flow (DCF) Method:

The DCF valuation approach is similar to the earning multiplier. However, this approach is based on projections of future cash flows based on the company's current market value.

Moreover, the DCF valuation considers inflation when calculating the present value.

EBITDA Valuation Approach:

EBITDA approach stands for Earnings Before Interest, Taxes, Depreciation and Amortisation Approach. This approach analyses the overall financial worthiness based on primary earnings.

However, the EBITDA is suitable for complete financial analysis, as it does not show the everyday valuations of costs or expenses.

Liquidation Value Approach:

So, hypothetically if a business turns all its worth, assets, and liabilities into net cash after liquidating. The liquidation value approach needs to take more help or flow into consideration but just provides simple financial estimates of the corporate based on right-now valuations.