Question

what advice would you give to someone who was just starting to use modern valuation tools?

Answer 1

Below points are written considering the user wants tips on business Valuation :

• The appropriate model for the valuation of the economic entity should not only inform about the total value, but also indicate the structure of the sources of its creation. Therefore, business valuation methods should take into account as many components of the company affecting its value as possible
• Nowadays, intangible assets and the ways of their use are more important than the category of so-called material substances, which determine the abilities of the company to multiply the invested capital (including, among others, human potential, brand, know-how, People Data etc.)
• The existence of many subjective factors affecting the valuation may lead to abuse, pressure and the desire to influence the experts’ decisions, which results in the distortion of fair value.
• Mixed valuation methods combine the methods of the valuation of assets with income-based methods. This is due to the assumption that the value of the company is affected not only by its assets but also by the ability to generate income.It is safe to say that one approach isn’t necessarily better than another, instead, the best assessment of your company will likely come as a result of combining multiple business valuation methods
• The terms enterprise value and valuation are of great importance. Knowledge about how much an enterprise is worth is of fundamental importance for both the owner of that company and investors when negotiating the price of an enterprise at the time of conducting a commercial transaction
• Modern enterprise financial management is about maximizing its value. An enterprise is a special form of investment. The owners, by investing in their own capital resources, expect to obtain certain benefits resulting from the multiplication of capital invested in this way, which leads directly to the increase in the value of the enterprise they own
• Business valuation is a complex process that requires the application of the vast knowledge of many fields of sciencethere is no closed and complementary set of rules applicable to this process. The lack of uniform regulations is primarily due to the fact that it is not possible to fully codify a process that may relate to entities with different specificities, legal forms, assets or ownership structures. However, there are standards that allow for its partial structuring. Therefore, in many countries of the world, for many years, there have been standards for business valuation.
• The determinants of the selection of the business valuation method include :
  • Valuation objective;
  • Who orders (recipient);
  • Type of the company due to usability;
  • Economic condition of the company and the condition of the environment (economy, industry, region);
  • Type, scale and diversity of business;
  • Type and number of assets;
  • Operation and development prospects of the company;
  • Type and quality of information about the company and the market that it is possible to obtain;
  • Approaches and types of value in business valuation
• Valuation should be perceived as a practical activity and defined as a way of value (monetary) measurement of the enterprise, i.e., its resources and economic effects of decisions taken. Fair value is the amount for which an asset can be exchanged if the transaction takes place under market conditions between interested parties who are not related to each other and possess the information that allows for full assessment of the value of the subject of the transaction. At the same time, business valuation is a complex process that is able to illustrate the actual and fair value of the company only if it is carried out in accordance with the so-called characteristics of good (reliable) valuation, which include
• Compliance of the valuation with the facts;
• Timeliness of data, transparency and relative simplicity;
• Clearly defined purpose of its preparation;
• Being based on the financial data of the company;
• Not being made exclusively on the basis of the value of the company’s assets unless it concerns the so-called liquidation method;
• Taking into account income and intangible factors;
• Taking into account the company’s development forecasts and risk factors;
• Taking into account all relevant information which affects the valuation and is available in the process of its preparation;
• Being objective and reliable.