How to determine the value of companies?
Company pricing methodscompany values
For the valuation of the company, three different methods are explained below:
A. Discounted cash flows
According to this method, the value of the company is obtained as a result of analysis of the cash flows of the company, the structure, customer portfolio, market share, potential, organization and management staff of the company.
In summary, this method can be expressed as reducing the future cash flows of the company to the valuation date. Reduction is carried out as a result of the application of a discount rate in line with the market conditions and the risk profile of the company to the cash flows. In this method, the value of the company consists of the sum of the discounted cash flows and non-operating assets. When calculating the equity value, the market value of bank loans (if any) as of the valuation date will be taken into consideration. In this method, the share value of the company is calculated by taking into consideration the nature of the discount rate applied to cash flows.
Value analysis and sensitivity table
Even if the companies are consistent in their projections, the predicted variables and the results may be different as a result of uncertainties in the future. Therefore, the budget and projections that constitute the basis of the INA study may lose their validity in the near future. The variables that are likely to change in the future can be divided into two:
. General variables: The discount rate is the variables that are brought up in all companies, rather than the corporate value, such as the ongoing value growth rate, tax rate.
. Specific variables: The structure, sector and operations of the company are directly related to the variables. For example, the gold prices in the market for a gold extraction company are private. Another example is that the prices of steel raw materials are a particular variable for a company whose steel is mostly steel.
. Determining the effects of these variables on company value,
. The fact that the DCA study has not been validated in a short time and
. Value Analysis and Sensitivity Table methodology has been developed in order to give higher value added information to the report reader. In this methodology, the above-mentioned general and specific variables are determined and the value of the company is estimated by the financial model that is established.
B. Comparable market value method
In the valuation of the company, this method, in which the value of various financial ratios of similar companies in the same sector and / or the ratios of the transactions in the past in the sector is determined, is generally determined in two different ways.
Comparable company analysis
In this method, the company’s financial statements are compared with the financial ratios of similar companies. Similar companies have their share values and the financial ratios of these companies are analyzed and compared with the company’s data.
As a result of this analysis, comparable market values are reached for the company.
Comparable Operations Analysis
The second basic method, comparable transaction analysis, examines the sales transactions of similar companies both domestically and internationally, analyzes the financial ratios of these transactions and compares the results with the size of the company. In this method, the special circumstances in which the companies operate or where the sales are performed may not be disclosed.
C. Net asset value management
The net asset valuation approach is based on the assumption that the money a buyer will pay to buy an entity will be at least the amount that will be obtained by converting all of the assets of the business to cash at a certain date or the value of the assets to be renewed. This approach does not take into account the potential revenues and future value that an entity can generate in the future, but it is approaching the potential liquidation value or the renewal value of the enterprise and provides an estimate of the minimum value of the company.
The valuations based on assets represent the net book value of the assets and liabilities, book and market values. The situations where this approach is most appropriate are those in which the business will terminate its activities and its assets will be evaluated. This method may be used to dispose of excess or non-operating assets.