Question

3 primary drivers of valuation are?

Answer 1

Three primary drivers of valuation may be stated as follows: -

1. Economies of Scale

An increase in production output results in the costs per unit typically go down. It may be through quantity discounts and/or through the spread of capacity costs over bigger volumes. Exploiting the internal economies of scale well help a company grow. Also, extra economies of scale can also be realized by companies by entering into a joint venture, outsourcing or consortium to improve its buying power, as well as lower its expenses.

2. Technology

Small companies usually lack adequate resources for research and development due to limitation of large monetary resources. Thus finding itself difficult to match the changes in technology in their markets. Such companies are forced to allocate resources to a few product development projects most of the time and they might also incur a lot of expenses in the near future. The result is obsolescence of the product or service, loss of market share or may be poor growth. However, through the development of products by larger companies, shows technological expertise better. This helps to them to address emerging customer needs along with attracting customers for choosing modern high performance products.

3. Product and Service Offering

By concentrating on niche fields, specialty entities develops their strength. Due to overdependence on a few markets and lack of diversification, such focus can lead to risks.

The majority of its customers of some of these businesses may adopt a policy in order to only deal will the suppliers that offers a wide variety of products. Thus, compelling them to either sell out to a bigger company or by expanding their product offerings. Companies should strive in developing a mix of offerings.