How to calculate business value

Business value is an objective indicator of its functioning, the current value of future benefits from owning it. It gives an idea of ​​the most likely price at which a business can be alienated in the open market in a competitive environment.

Instruction manual

1

If you want to calculate the business value in the forecast period, then use the cash flow discounting method. It involves the application of a discount rate, i.e. interest rate used to bring future income to present value. In this case, the estimated business value will be calculated as follows: P =? CFt / (1 + I) ^ t, where CFt is the cash flow for the period t; I is the discount rate; t is the number of the period at the beginning of which the business is evaluated.

2

But you must understand that the company continues its work in the post-forecast period. Depending on the company's development prospects, various options are possible: from its stable growth to bankruptcy. To evaluate the business, you can use the Gordon model, which assumes that the growth rate of sales and profits is stable, and the amount of depreciation is equal to the amount of capital investment. In this case, the business value is determined as follows: P = CF (t + 1) / (Ig), where CF (t + 1) is the cash flow in the first year of the post-forecast period; I is the discount rate; g is the cash flow growth rate. it is advisable to apply the model if the sales market is large, the supply of raw materials is stable, the enterprise has access to the necessary financial resources, and the market situation is favorable.

3

If in the post-forecast period the bankruptcy of the enterprise is expected with the further sale of its property, then use this calculation: P = (A-O) x (1 - Lav) - Reliqu, where A is the amount of assets subject to revaluation; O is the amount of liabilities; Lav is the discount for urgency in liquidation; Rlicv - liquidation costs. This includes insurance, taxation, managerial expenses, appraiser fees, and employee benefits. The liquidation value is affected by the location of the enterprise, the situation in the industry, asset quality, and other factors.