Business valuation. Briefly about goals and approaches

In today's world, business valuation is becoming increasingly important, as it is simply necessary when the company's management makes any decisions. Any enterprise carries out an appraisal of a business with the aim of correctly planning financial activities and managing it correctly. The application of this kind of assessment, as a rule, improves the efficiency of resource use and ensures an increase in the level of control and security. An integrated approach to valuation is to establish the market value of a functioning company, that is, the optimal price at which it can be sold in a competitive market. In addition, an enterprise's business valuation may also be relevant to determining the value of business units, its fixed assets or used equipment.

When is it necessary to conduct business valuation?

Valuation of the company's business is necessary when justifying the purchase or sale transaction of the whole business or its share, determining the market value of collateral for the loan, justifying the investment, developing a business plan, the need to justify the tax base, and in other situations.

The object of evaluation can be any enterprise: a small company, a business association, a structural unit of one enterprise, and a company with a certain organizational and legal form, and a bank and an insurance company. Before making a decision to evaluate the business, it is necessary to determine the purpose of the valuation performed. If this is setting a real business value, an official report is usually not required. Registration of the evaluation report increases the cost of the services of valuation firms and private appraisers. If we talk about the stages, business valuation has a certain algorithm. First, information about the evaluated object is collected . The second step is connected with the analysis and study of the market in which a certain enterprise operates. To do this, it is usually necessary to use as much information as possible about the activities of a similar company. Then, calculations based on appropriate approaches and methods of evaluation are followed, after which the results obtained by conducting business valuation with different approaches are agreed upon. The final stage is the preparation of a business valuation report. To classical approaches include profitable, comparative and costly.

Business valuation with the application of a revenue approach requires processing of information on business incomes, since the value of the valuation object will depend on this indicator. The higher the income from business, the more it costs. In this case, the valuer takes into account not only the amount of income, but also the period for which it can be obtained, as well as the risk that accompanies the process of making a profit.

A comparative approach is used when assessing when there are several objects on the market with which the object of evaluation can be compared. The accuracy of determining the optimal business value in this case will depend on the reliability of the data collected about the analogue companies.

A cost-based approach is used to estimate an enterprise that does not generate a stable income. It can also be a newly created enterprise, or a business in the liquidation phase.

It should be noted that all these approaches are closely related, and in an ideal market the evaluation of the same business through different approaches will have the same results. However, the market is in most cases imperfect, and most often the use of three approaches leads to three different results.