Business and Stock Valuation
Business valuation, stock valuation, appraise the value of the stock and appraise the value of the business all have a similar meaning. The enterprises under the business operations on an organization or company will have a different business value which depends on past performance or differences in assets held by that organization that are not the same regardless of whether they are tangible and intangible assets. For your information, in some organizations, the intangible assets may even have a much higher value than the real estate which the business value will be difficult to compare. However, businesses that operate in the same industry may have comparable standards in some areas.
In this case, the 2 most common valuation methods when it comes to business valuation are:
First, the adjustment of accounting costs which will be based on the assets held by that organization such as both tangible and intangible assets. The tangible assets can be real estate, land, buildings, machinery, equipment/tools, inventory, etc. including adjustment of cash status. On the other hand, the intangible assets can be brand/trademark, license software, patent, concession, various rights of claims, goodwill etc. When receiving the complete set of assets according to the list, the business valuation will be conducted by referring to the current conditions.
The next step is to appraise using the ‘Income Approach’ by referring to the past performances of the business which will be analyzed together with competitors in the same industry. Modify some of the important factors to suit the operations and market share status as well as analyze the strengths and weaknesses of the business operation. By doing these, it will allow you to project the cash flow that will be the future performance and ability to know the current business value using the income approach to be able to compare the result with the one calculated by the ‘Cost Approach’. For your information, some of this information will be received from interviewing the business owner together with some additional reference documents to be requested.
Reviewing the appraised value of a business may also use performance indicators of competitors in the same market and industry or by comparing with companies in the stock exchange that are in the same industry in P/E P/B, etc.
Therefore, business valuation can be done in both cases, before and after purchase. The benefit of appraising before the purchase is that the valuers can assist you with making due diligence in activities that affect the appraised value of the business to be tightened for example the board of directors acquires a factory that is closing down which the total purchasing price is higher than the property value such as land, factory, and machinery. It is possible that the excesses are a production belt system, expert software, software program, and various claims that are required to review based on the documented evidence whether to appraise the value or not, for example, skill labor or key man that has been documented in the contract of employment for a period of time after changing the shareholder structure, etc