{{1}}
1. What does the valuation of a business consist of?
Valuing a business consists of Evaluate each item of assets (what the business owns) and liabilities (what the business owes) recorded on the company's balance sheet in order to obtain net assets.
In practice, it is the Amount to be disbursed if a person wants to acquire 100% of the company's capital.
However, you may also want to promote your business to improve its functioning, know its strengths and weaknesses or even present a Business plan to obtain financing, in particular as part of a Fundraising.
{{2}}
2. What are the criteria for valuing a company?
THEassessment of the financial value of the company It is equivalent to making a complete diagnosis. It takes into account various elements. Namely:
• the company's turnover;
• its financial structure;
• its customers;
• the state of the market and competition;
• the reputation of the company;
• its know-how;
• its material and equipment;
• the internal functioning of society.
Good to know
Business valuation also includes subjective elements such as the seller's relationship with the company during a sale. The valuation of the company gives an estimate At a moment T.
{{3}}
3. What are the methods of valuing a business?
There are several methods of valuing a business. Moreover, you can Combine two or three to obtain a more accurate estimate and a multi-faceted vision.
The heritage method
The wealth method consists in evaluating thenet accounting assets of the company, that is, the difference between the assets and liabilities of the company.
You must therefore proceed with theanalysis of the company's balance sheets for the last three fiscal years. However, this method does not take into account the profitability and development potential of the business.
However, it is useful for know the replacement or liquidation value of the business.
Good to know
It is also possible to use ratios to highlight the level of the company's profit according to its liabilities (or its capital).
The comparative method
This calculation method Compare your business with others that are similar to him. It therefore uses:
• to businesses with a similar profile (size, market, etc.);
• to comparable transactions;
• to reference indexes;
• to the sector of activity.
However, this method gives a fairly wide range.
It is particularly suitable for Sale of businesses since there is an official rating. Other sectors also have scales. For example, Éditions Francis Lefebvre publishes a scale for the valuation of goodwill in its Practical Handbook Evaluation.
Do you need to obtain the approval of your partners to sell your business shares? Hold a online general meeting ! Axiocap allows you to:
• to send the invitation email;
• to vote on resolutions electronically with automatic calculation of the number of votes and integration into the minutes;
• to use the electronic signature for the documents of the meeting;
• to archive your documents in a digital safe ;
• to export your general meeting minutes and your register.
The profitability method
The method based on future profitability estimates the future ability of the company to generate profits. The value must then be weighted taking into account the risk of non-realization of the predictions.
We also talk aboutactuarial approach. It makes it possible to estimate the future income flows generated by considering the risk of the economic asset. It is a projection.
With this approach, you need to define a discount rate taking into account future cash flows. It also makes it possible to determine the level of risk of the company.
The flows considered can be:
• The dividends distributed ;
• “cash flows”;
• future benefits.
Les actuarial models the most used are:
• the Gordon Shapiro model, which is based on discounting dividends;
• the Bates model, which takes into account future profits, the pay-out ratio (payout ratio) and various fluctuations over a long period of time;
• the method of discounting “free cash flows”, also called the DCF method, which depends on the company's earnings capacity measured by its “free cash flows” or free cash flows.
La DCF method especially concerns innovative companies and “startups”.
To note
It is possible to value the company in terms of its performance. In this case, you must base yourself on various financial indicators such as added value, accounting result, commercial margin, gross operating surplus... All you have to do is then apply a percentage to the chosen indicator.
For example, the valuation method based on operating income (REX) allows you to measure the company's ability to generate resources with its main activity. It does not have to take into account financial income and expenses, nor exceptional products/expenses, nor employee participation in results, nor taxes on profits. However, this method takes into account the investment process unlike EBITDA.
This method is used in particular during a business takeover to get an indication of its profitability. REX is obtained from turnover or gross operating surplus.
{{4}}
4. What ratios do you need to know to value a business?
Valuing a business generally requires the use of some ratios.
The best known is the PER (price earning ratio). It is a coefficient applied to net profit to obtain the value of the business. It is also the ratio of share price to net earnings per share for a publicly traded company. It shows the number of years of profit needed to recoup the initial investment.
There is also the capitalization to dividends ratio. It is based on dividends paid instead of profits earned, i.e. on the shareholder's real income and the real investment payback period.
As for PBR (price to book ratio), it is often used with a comparative approach. With this one, it is necessary to determine the capitalization and net accounting assets of the company using one of the following formulas:
• net accounting assets = accounting assets - fictitious assets - debts
• net accounting assets = equity - fictitious assets.
Finally, the fourth current ratio is PSR (price to sales ratio) which calculates the valuation of one company in relation to another. It is based on a sales multiple. It shows the number of times turnover has been integrated into the valuation of the company. It is calculated in the following two ways:
• capitalization/turnover;
• (capitalization + net debt)/turnover.
Good to know
It is possible to choose theadjusted net assets (ANCC) in place of net accounting assets. It includes corrections including:
• the re-estimation of the asset with unrealized gains and losses;
• taking into account active deferred taxes (tax claims) and deferred liabilities (tax debts, investment grants and derogatory amortization);
• the reclassification of provisions for unjustified risks and expenses.
{{5}}
5. What are the differences between valuation and sale price?
The valuation of a business gives an order of magnitude that allows negotiations to begin during a sale of a business.
As for the transfer price, it is subject to the law of supply and demand and in particular to the price that the purchaser is ready to pay and the price that the transferor is ready to accept.
It may be necessary to carry out a valuation of a company during the global sale of the company, but also during a sale of shares.
Axiocap Suggests you to carry out your movements of shares and shares online including the generation of movement orders and Cerfa, the use of a tool for creating securities and the export of the register of movements of securities in one click.
{{6}}
6. Who can carry out a business valuation?
Valuing a business requires knowledge in accounting and finance. It is therefore recommended to call on a competent and neutral professional such as:
• an expert recognized by the CCEF (Compagnie des Experts Financiers);
• a firm specialized in business transfers;
• a chartered accountant.
Switch to the dematerialization of all your administrative procedures in business! This process is easy, fast, and secure with Axiocap. Moreover, it is a first step in becoming an ecological company. Dematerialization reduces the use of paper and travel!
.avif)
