Various Methods for Valuation of a Business
09

Dec 2019

Business valuation represents the general process to estimate the overall economic value of a business or any organization. To determine the fair value of the business for several reasons valuation is done. That valuation includes calculation of sale values, tax audit, partner ownership taxation. Professional business evaluators, chartered accountants, auditors are involved in the business valuation process also demands qualified analysts with proper credentials. Because of the vast diversity in the UAE many investors are incorporating their business so for every business in the UAE today the business valuation plays a very crucial role. These techniques also help to estimate the current worth of the company.

Business valuation is usually conducted when a company is up for selling its share in total or a portion of its operations. Another reason may be looking to merge with another company or if it wants to acquire another company. The business valuation includes all accounting services, auditing part, analysis of the sum of capital structure, the market value of all the assets of the company, and the future earning prospects of the company. Various kinds of tools are even used for valuation purposes. One of the significant business valuation procedures includes tax filing and tax accountant services. The Internal Revenue Service (IRS) needs an overview of the business based on the fair market value.

Methods of Business Valuation

The company can be valued by the following methods 

1. Market Capitalization

Market capitalization is the prime method of business valuation. It is estimated when the total number of shares outstanding multiplied by the company’s share price.

2. Earnings Multiplier

The earnings multiplier can be used to get a more accurate and real value of a company since a company’s profits are more visible evidence of its financial success than sales revenue is. The earnings multiplier adjusts future profits against the cash flow statement that could be invested at the current interest rate over the same period of time.

3. Discounted Cash Flow (DCF) Method

The main difference between the method and the earning multiplier and discounted cash flow method is that it considers inflation to calculate the present value. DCF method is based on projections of future cash flows, which are manipulated to get the present market value of the business organization.

4. Times Revenue Method

the times' revenue business valuation method, is a method of calculating the revenues generated over a certain period is applied to a multiplier which depends on the industry and economic environment.

5. Liquidation Value

If all the assets of the company are liquidated and liabilities are paid off, and after that, the business will receive the liquidation value. This is the net cash that a business will receive.

6. Book Value

This is just like the bookkeeping service showing its balance sheet of the shareholders' equity. The book value can be calculated by subtracting the total liabilities of the company from its total liabilities.

7. Intrinsic valuation

It represents the value of an asset to its inherent characteristics: it's capacity to generate capital for the organization and the risk in the cash inflow and outflow. In short, it is the most common form, when the intrinsic value is computed with a discounted cash valuation, with the value of an asset is the present value of expected future cash inflow and outflow on that asset. In such cases where cash flows are more predictable in the business.

8. Relative valuation

It represents the comparable term between the pricing of different assets by looking at the pricing of relative assets to a common variable like earnings, cashflows, book value.

9. Claim valuation

It uses various option pricing models to measure the exact value of assets that share different options as characteristics.

JAXA’S Role for Growth of Business

JAXA will help you to assist in the following aspects

  • Obtain an in-depth understanding of business and ownership interest
  • Performing a thorough financial and qualitative analysis
  • To enhance and evaluate the business to check its market value
  • The account services and the auditing part will maintain the transparency of the business
  • Business evaluation by JAXA will help for merger and acquisition of a company
  • For the company restructuring purpose, a proper business valuation should be necessary

JAXA Chartered accountant services operate brilliant accounting and bookkeeping services, auditing services, handle all the taxation system that includes VAT registration, merger acquisition program in the UAE. Contact us to get more information regarding company information and services.