The type of valuation method used by our financial analysts in perpetual depends on a various factor such as the industry where the company operates, the size of the company, expected cash flow and the type of product or service it offers.
Numerous business owners and entrepreneurs underestimate the importance and what the business valuation process entails for improving the company, the main objectives of the valuation process is to identify the critical value-generating areas of the business, a powerful driver of how to manage your business, track the effectiveness of your strategic decision-making process provide the ability to track performance in terms of estimated change in value, not just in revenue and create accountability by identifying gaps and set a path for the future with measurable goals.
In perpetual finance, our analysts use several methods of valuation, depending on the clients’ objective of the assessment and the industry sector. Most commonly used approaches in our company are:
The Cost Approach
The cost method provides the fair value of the business by utilizing the cost related information compared to the market current values and the estimation of depreciation. By using this method, we provide our clients with a baseline that indicate the business current and future value, helps the clients to determine ways to improve their business and it provides a pretty good measure of how you’re doing compared to the path you’ve set for your business.
Discounted Free Cash Flow approach (DCF)
An intrinsic value approach where an analyst forecasts the business’ unlevered free cash flow into the future and discounts it back to today at the firm’s Weighted Average Cost of Capital (WACC). This approach requires an extensive amount of details and analysis, it aims to determine the company’s ability to generate wealth and estimating the cash allocation, this method provides insight into the future performance of the company and its ability to generate cash flow via the company’s resources.
A method of estimating the fair market value of a business based on the average market prices, the market approach studies price-related indicators like sales, book values, and price-to-earnings, revenue, and cost of similar businesses in the same operating industry, taking into consideration the proper adjustments for different quantities, qualities or sizes.