How to calculate the value of the Company


The basic financial objective of a business is to maximize its value or what is the same, maximizing the owner's wealth. But how do you know if the company is gaining value?
If it is a company that is not a corporation that has a presence on the stock exchange, we can face a complex and expensive problem to establish the value of the company depending on its size and complexity
A simple and simple but very approximate way to determine the value of a company or business, is based on the potential of generating utility and cash flow of the company.
If so, would you like to know how to calculate the value of the company?
This can be a practical exercise that the owner wants to develop in order to know what the value of his or her venture may be, or to determine a sales value of the company.
In both circumstances, to determine the value should be used as a reference monthly profits that leaves the business to its owner.
Calculate the value of the company let’s see then a little exercise. Assume that the owner of a warehouse receives a monthly profit of $ 2,000,000. If the owner is thinking of selling the business or just want to know how much it is worth, we should know what the owner would do with the money he will receive from the sale.
There are several destinations to invest your money and alternatives that imply an expected profitability, since all commercial, industrial and service activities represent different risks, so they generate different returns.
Suppose now that the owner would put that money from the sale at interest in a financial institution that pays 2% monthly. This type of reference with the interest rate of the financial sector, to analyze this type of decisions in small companies, is made taking into account that it is an information easy to get, assuming also that the rate of capture of the market is the one to which An investor can in minimum risk conditions place their money.
With these data we then determine the value that the owner would use as a reference point in the pricing of the warehouse. What is done is to calculate an amount that placed at 2% monthly produce the monthly $ 2,000,000 of utility received, or 2,000,000 / 2% this ratio gives us an amount of $ 100,000,000.
That $ 100 million result suggests that this is value of the store or the minimum value that the owner would be willing to accept if he wanted to sell it, since these placed at the market rate produce the same $ 2 million that he currently receives in his business.

This is a practical and simple exercise that allows you to calculate the value of a non-complex company, which can be useful first hand. In finance there are more precise and complex methods to estimate the value of a company.

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