What Is Business Valuation?

Learn why you should know the real value of your business

The economic stability of a business and its scalability within the market is essential to have a clear vision of the scope that a business can have over time within the business world.

Maintaining adequate financial health within the development process of a company implies taking measures that will allow us to know the state of determining indicators in the business, for which a tool such as Business Valuation can work perfectly.

When we talk about business valuation, we refer to the study carried out in a new or already established company, to determine the current economic value of the elements that constitute the accumulated net worth of the company, based on future flows.

But it is important to take into account that when we talk about value we are not specifically referring to the money price of the company, but to the value obtained from the sum of the value of the shares plus the net financial debt that the business has.

Therefore, it is necessary that before carrying out a business valuation, there is a market context, a review of historical financial statements, an investment plan for the use of the capital raised, and other generating variables that allow determining the real value of a business. .

At Prendho, we carry out the valuation of companies based on this information, using the future flows methodology; and once the value of the company or venture is obtained, the @Risk tool is used for sensitivity and risk analysis based on “Monte Carlo Simulation”, which allows moving from a deterministic model to a multi-scenario model.

When to carry out a valuation of your company?

The valuation of a company depends on different factors, both external and internal, and can be carried out in any situation in which it is necessary to know the available resources and the accumulated value of the company’s actions.

But it can become indispensable in certain situations, such as when entrepreneurs and businessmen are making their first sales or consolidated sales positioned in the market, and need to raise risk capital or place investment to scale their value offering.

Knowing the real value of the company in this situation allows them to negotiate under appropriate conditions and not with empirically executed calculations that reduce credibility with potential investors.

Prendho has human resources trained and certified in specialized institutions such as the University of California at Los Angeles (UCLA) and the Latin American Institute of Investment Projects, Engineering and Economics (ILPIIE) of Peru, to help the entrepreneur or businessman determine the value of your company, especially when you need to raise capital or place investment.

Steps we follow at Prendho to carry out an assessment and sensitivity and risk analysis of your company: 

1. Define the requirement of the company or venture
2. Gathering information through experts on:
   1. Market context
   2. Historical financial statements
   3. Investment plan
3. Carrying out valuation with the future flows method.
4. Determine information through the @Risk tool
5. Prepare a report with recommendations to the businessman or entrepreneur.

Remember that you can contact Prendho and make an appointment to define the requirement of your company or venture.