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Company Valuation

The value of a company is generally used as a starting point in negotiations. A buyer and a seller, however, may have entirely different views of future developments and therefore have a diffent view of the value of the company. Value is a subjective concept.

The price that will be paid is only agreed upon after negotiations in which many other aspects play a role. The strategic importance of a transaction, fiscal matters, the financial situation of the buyer and other aspects are of influence on the negotiations and have an impact on the price for the transaction.

The role of Erasmus corporate Finance is to prepare a thorough valuation, bring potential parties together and do whatever is necessary to come to a succesful transaction for our client. Negotiating skills, perseverance and creativity are several elements that we contribute.

It is essential to have a good understanding of the sustainable profitability of the company, the market position and the future perspectives. The value drivers are identified and furthermore we will assess the possibilities for synergy (1+1 = 3 effect) for the potential buyers.

The value of a company can be assessed using several valuation techniques. The most important (and conceptually correct) method is the discounted cash flow method. Using this method future cash flows are discounted to their value today. To that end adequate forecasts need to be prepared, and usually several scenarios are taken into consideration.

Apart from the DCF-technique other valuation methods are used:

  • Market value
  • Comparables
  • Net asset value

Valuation process

Below we outline the steps to be taken when valuing a company.

  1. Collect Information.
    Annual reports, budgets, management information, market information, industry information, etc.
  2. Interview management.
    Explanatory notes, one off's , rationale behind forecasts, competition analysis, swot-analysis.
  3. Analysis of figures and other information.
    History, present situation, future expectations, value drivers, unique selling points.
  4. Valuation.
    Apply the several valuation methods. Determine cost or capital, free cash flow, capital ratios, investment plans, working capital needs.
  5. Report.
    Prepare report, presentation of findings and recommendations.

Learn more about the value of a company