Business valuation means determination of the value of the company as a property complex that provides profit-making for its owner.
In the process of the business value assessment the value of all company’s assets is calculated: real property, machinery and equipment, stock resources, financial investments, intangible assets. In addition, the following factors are evaluated separately: working efficiency of the company, its past, present and future revenues, development prospects and competitive environment in the market. On the basis of such comprehensive analysis the evaluated company is compared with analogue companies and reasonable assessment of the business as a property complex that could be profitable is provided.
Ongoing business is an object of the market of purchase and sale, mergers and acquisitions. The cornerstone for success of future transaction is a proper business value assessment for the purpose of sale to a strategic investor.
Business value is an objective index of results of its functioning. In fact, the business value assessment is financial, organizational and technological analysis of current activities and prospects of the company. Assessment of the company is based on numerous factors, provided that for different organizations the priority is given to various indicators.
First of all, we should define the purpose of the company evaluation.
There are two options. The first option: business valuation is carried out in order to perform particular legal actions. You need an official opinion on the company value in the form of an Evaluation Report prepared by an independent valuator, who is licensed to conduct valuation activities.
The second option: company value assessment is carried out in order to determine the real value of business. You do not need an official Evaluation Report on the market value of business, as required by law.
The principal difference between these situations is contained not in the quality of work performed by the valuator, but in the intent of result. Valuation activity is one of the licensable types of activity, for that reason the legislation imposes on it specific requirements, execution of which while preparing the Report, as a rule, leads to increase of the evaluation service costs.
If the results of evaluation are drawn up in the form of the Opinion, but not an official Evaluation Report, so in the process of negotiation a detailed scope of work is developed and agreed. In accordance with it the valuators perform only procedures specified by you, but not the entire package of operations mandatory from the point of view of the legislation.