Traditional valuation methods: a deep dive
The valuation of a company is a complex process, using various approaches and methods to arrive at the most accurate estimate of what a company is really worth. Within traditional valuation methods, we distinguish three prominent methods. Each of these methods offers a unique perspective and approaches valuation from its own angle.
- Discounted cash flow (DCF) method: a robust valuation approach
The DCF method provides an incisive look at a company's intrinsic value by evaluating its future cash flows. Typically, this method is applied over a three- to five-year period. It relies on the company's business plan and all relevant available data. Financing costs and dividend payments are excluded, leaving "free cash flows. The focus on future cash flows makes the DCF method reliable and valuable, especially for banks interested in future cash flows.It is advisable to discuss this with your accountant or tax professional. If they prefer not to perform this themselves, you can always contact us for expert advice. - EBITDA valuation: what is EBITDA and how is it used?
EBITDA stands for "Earnings Before Interest, Taxes, Depreciation, and Amortization. It reflects a company's operating profitability independent of factors such as interest, taxes, depreciation and amortization.For valuation purposes, a multiple is often applied to EBITDA. This multiple varies depending on the industry in which the company operates, as well as other company-specific and market-related parameters. Valuation data is often available in digital accounting systems such as Yuki or Winbooks. - Comparable company analysis
By looking at recent sales and stock market listings of comparable companies, one can establish a benchmark for valuation.
The importance of making the owner expendable
Continuity of a business is crucial. Investors or buyers look for companies that are not heavily dependent on a key person. Independent functioning is an indicator of stability and growth potential.
Future perspective and online presence: the modern evaluation framework
Future prospects are strongly linked to online presence.
- Digital Footprint: Websites, social media profiles and online reviews are essential.
- Engagement and Interaction: Regular updates and response are crucial.
Investors are particularly attracted to companies showing an upward growth trend accompanied by positive indicators and consistent patterns that support such growth.
The combined evaluation process
The combination of traditional and modern aspects provides a comprehensive picture of a company's value. An investor or buyer is looking for a higher return on their investment than with traditional investments.
Selling and buying companies requires in-depth financial analysis and understanding of digital trends. A strategic partner like Tunity plays a crucial role here by making the connection between the two valuation methods.
Looking for strategic insight or more information on this topic? Fabio and the Tunity team are ready to support you!
