Question
In: Finance
How do financial managers determine the value of a business?
How do financial managers determine the value of a business?
Solutions
Expert Solution
Financial managers will be determining the valuation of the business using-
A. Market capitalisation methods-this is one of the important method in order to determine the cost of the company by taking an appropriate capitalisation rate and charging in on to the overall earnings of the company in order to find out the market capitalisation of the company as a whole.
B. They can also use discounted cash flow method because this is the most adopted method in order to determine the overall market value of the company as these methods will be relating to the overall cash flows of the company and they would be discounted at the present value in order to arrive at the total value of the company.
C.they can also be adopting various kinds of cost with strategies and using a markup and then arriving at the total value of the turnover and then estimating the value of profits to arrive at the total value of the company
it can be said that these are the matrix which are used by the financial managers and they can be also using the mix of these strategies in order to arrive at the total value of the firm and these financial managers are not well equipped with the traditional valuation methods which a business analyst will be adopting.
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