Valuation of a Companies Worth
Discussion Board Forum 2
Factors that Lead to a Valuation of a Company’s Worth Compared to that of the Financial Statements Marketplace and economic conditions can take affect the success of many businesses, sometimes directly impacting their profits, assets, and market share. These same factors can also drive changes in the value of the a business. They can also become useful tools when communicating company performance to investors and stakeholders. It is also very important to understand the current value of the company. This will allow for the business owner to have a more accurate assessment of the internal and external factors that impact the business.
The methodologies used to determine business value include the company’s profitability, efficiency, products, and services, customer base, economic conditions, and expected growth. The process often includes a review of the company’s financial statements, other internal documentation, as well as a marketplace analysis and competitive assessment. Unlike financial statements which show financial activities of a business, person, or other entity, a business valuation can help unearth what is needed to strengthen the business and ensure long term viability. It can also aid in identifying ways to increase the value of the company and allow it become more attractive to potential investors and buyers.
How Company Executives Create the Most Value for all Stakeholders Value is created by increasing a company’s cash flow through a combination of growth and returns on invested capital. Companies that perform well on long term cash flow, growth, and returns on invested capital perform well in the stock market. However, growth alone will not lead to value creation unless it is accompanied by adequate returns on capital. Also, high growth is harder to sustain than returns on invested capital. Most products have natural life cycles, which means that sustaining high growth rates entails company
Factors that Lead to a Valuation of a Company’s Worth Compared to that of the Financial Statements Marketplace and economic conditions can take affect the success of many businesses, sometimes directly impacting their profits, assets, and market share. These same factors can also drive changes in the value of the a business. They can also become useful tools when communicating company performance to investors and stakeholders. It is also very important to understand the current value of the company. This will allow for the business owner to have a more accurate assessment of the internal and external factors that impact the business.
The methodologies used to determine business value include the company’s profitability, efficiency, products, and services, customer base, economic conditions, and expected growth. The process often includes a review of the company’s financial statements, other internal documentation, as well as a marketplace analysis and competitive assessment. Unlike financial statements which show financial activities of a business, person, or other entity, a business valuation can help unearth what is needed to strengthen the business and ensure long term viability. It can also aid in identifying ways to increase the value of the company and allow it become more attractive to potential investors and buyers.
How Company Executives Create the Most Value for all Stakeholders Value is created by increasing a company’s cash flow through a combination of growth and returns on invested capital. Companies that perform well on long term cash flow, growth, and returns on invested capital perform well in the stock market. However, growth alone will not lead to value creation unless it is accompanied by adequate returns on capital. Also, high growth is harder to sustain than returns on invested capital. Most products have natural life cycles, which means that sustaining high growth rates entails company
References: Financial News. Business Valuation. Retrieved January 29, 2015 from http://www.cowsultants.com/business-valuation/ FreshMix. A better grasp of how value is created will help executive resist short term pressure. Retrieved January 29, 2015 from http://www.managementexchange.com/blog/better-grasp-how-value-created-will-help-executives-resist-short-term-pressure Prairie Capital. Business Valuation: The Strategic Decision Making Tool. Retrieved January 29, 2015 from http://www.prairiecap.com/business-valuation-the-strategic-decision-making-tool/