How is a company evaluated and why choosing transaction and valuation services for this work is an absolute necessity?

Transaction and valuation service?is one of the most complex and science-intensive types of consulting services.

The process of determining the value of a business requires economic, legal, technical knowledge, understanding of the specifics of enterprise management, analysis of business processes, etc. And therefore, turning to?transaction and valuation services? is considered to be very helpful for business owners.

There are standard methods for valuing a company’s assets, but the methodology used in determining the value of a particular business is in most cases, individual.

Before carrying out a business valuation, it is necessary to understand the basic principles of evaluation, which are fundamental and guide the entire valuation process.

Valuation principles

Among the principles on which the assessment of the enterprise is based, the following groups are traditionally distinguished:

Principles-based on user perceptions

• Utility. An enterprise will have value only if it can meet the needs of a potential owner, i.e., useful to its owner.
• Expectation. The price of the enterprise will be directly dependent on the income that a potential investor expects to receive from the acquisition.

Principles related to the external environment

Conformity. The company must meet the standards that are accepted in the country and the region, the prevailing expectations, and the requirements of the market.

Addiction. Any company is dependent on a whole range of external factors: from the quality of the nearby road surface to the national composition of the region, political and economic stability in the region where it operates.

Supply and demand. The price of a product is directly determined by the level of supply and demand for similar products.

Variability. It should be considered that all economic processes in the market, as well as in technological development, are mobile.

The principle of best and most efficient use

Based on the analysis of the characteristics of the enterprise, the state of the external environment, various economic factors, the most efficient use of the facility is determined, which will be economically feasible, technically feasible, and not legally limited.

Classical Approaches to Valuation

Traditionally, there are three approaches to assessment:

Profitable. The most important when evaluating a company is explained by the fact that a potential purchaser of a business is primarily focused on the amount of income that they can receive through their investments.?

Costly. Evaluation occurs from the standpoint of the volume of costs. The expert calculates the value of absolutely all the assets of the organization separately, after which the total value of the assets is determined, from which the amount of the company’s debt obligations are then subtracted.?

Comparative. The appraiser searches the market for an already completed transaction, which is very similar in characteristics to the one being evaluated, and based on the data of this transaction, determines the value of the company being valued.

In the assessment report, the expert describes the approaches and methods that he used during the assessment and characterizes the feasibility of their application. It does not matter what methods are used by the appraiser in determining the value of a particular enterprise – the result should be the same (when using several approaches – “convergence” of the results).

However, in practice, this is often not the case and the experience, training, and knowledge of the specialist conducting the enterprise assessment are of great importance. For this reason, opting for?transaction and valuation services?comes out as the best option available.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise.?AKGVG & Associates ?does not intend to advertise its services through this.