How much is your business worth, asks CavanaghKelly
As of last week, Microsoft ($850bn) had overtaken Apple ($847bn) as the world’s most valuable publicly-listed company, 16 years after the software giant lost its crown in the wake of the dotcom crash, says Michael Drumm, Partner at CavanaghKelly.
It’s an interesting one in terms of business valuation as Microsoft is trading at c. 24 times expected 2019 earnings whilst Apple is trading at c. 13 times what analysts think it’ll generate in 2019. This means Apple makes more money than Microsoft, but investors are currently willing to pay more for each dollar of Microsoft’s earnings. We discuss why this might be in more detail below.
The discussion around business valuation is always a topical one and can often involve a certain amount of emotion, especially when an owner is evaluating their own business.
Unfortunately, there are no hard and fast rules when it comes to determining the value of a business but there are some generally accepted methodologies and principles which can be applied to provide an indicative valuation for a trading entity.
This article aims to provide a high-level overview of the above and whilst every effort has been made in preparing this article, we strongly recommend that specific professional advice and guidance be sought for a more detailed appraisal of each individual business.
A valuation may be required in various circumstances, including the following:
- Preparing a business for sale / exit planning
- Evaluating an offer received for a business
- Analysing an acquisition opportunity
- Obtaining debt or equity financing
- Gifting of shares to family or employees
- Company restructuring
- Litigation
- Estate planning
- Death of a shareholder
- Shareholder or marital disputes
- Insolvency or bankruptcy matters
An important point to remember is that any professional valuation is only a best estimate and the true value of any business can only be determined by what a willing purchaser is prepared to pay the vendor on the open market.