Valuation of Companies
The valuation process is an essential tool for evaluating a company and calculating its market value.
The real value of the company plays a crucial role in financing, mergers and acquisitions of companies. Valuation is at the heart of financial analysis and this is because, the annual financial statements of companies alone are not sufficient to capture the results that interested investors, financial institutions and financial analysts are looking for.
The value of a company is mainly related to its ability to use its capital, generating cash flows that are greater than the cost of capital. In this way, the company’s shareholders and investors can make a profit from their invested funds in it.
The indicators analyzed in the valuations are divided into five main categories:
- Liquidity ratios
- Activity ratios
- Debt burden indicators
- Performance or profit/loss ratios
- Market value or valuation ratios
For the most effective assessment of the value of a business, a comprehensive analysis is required, based on the creation of a targeted Business Plan, the financial analysis and finally, the valuation of the company.
The correct combination of the above is essential to draw reliable conclusions.
