How to Calculate Company Valuation [Full Guide]

April 15, 2020January 16, 2023 Shyam Kumar 0 Comments guide, how to

You may think What is Company valuation, Why the Valuation of my Company is necessary, and How to Calculate Company Valuation.

This guide will explain to you the 6 methods on How to Calculate Company Valuation and why you need to do the valuation of your company.

Now, let’s understand What is Company (Start-up) valuation or the valuation of the company?

What is Company Valuation?

The procedure for estimating the market value of the company is known as the valuation of the company. Some time the valuation of tools or machinery is estimated to resolve any disputes in the business. Financial market participants are the users of valuation, they determine the value of the business to buy or sell a company shares for the profit.

Objective measures are used to determine the current worth of the company, looking at each and every aspect of the business, i.e Valuation. Well, valuation is the most interesting topic that has been discussed by financial participants and corporate finance. Estimating the valuation of the business is very useful during the merges or acquiring another company and also while raising funding for any business.

Valuation tools can differ from evaluators, businesses, and industries. During the valuation of the company, some aspects may include such as the capital structure of the company, the future earnings prospects, the market worth of all its assets and an analysis of the company’s management. Some few methods for business valuation include financial statements, discounting cash flow models and comparisons with similar businesses.

Reasons For Company Valuation

There are different reasons for estimating the valuation of the company. Reasons behind this can be either raising funds for a business, taxation purpose, establishing the shares in the company of your partners, during selling company, or in case of acquiring another company, etc.

Methods Of Valuation

6 Methods that will help you to Calculate Company Valuation.

1. Earning Multiple:

To get a more accurate and real worth of the company, earning multiplier is used. The most reliable indicator of the company to know the financial success is the profit of the company. The annual profit is multiplied by figures that are usually in the range of 1-3 (which is depended on the size of the business).

2. Market Capitalization:

The simplest method you can use is market capitalization. The company’s share price is multiplied by the total number of its total number of shares outstanding. This method is started by determining the company’s current share price than the total number of shares outstanding and multiply the shares outstanding by the current share price.

3. Times Revenue Method:

Depending upon the business, industry and economic development, the current revenue of the company is multiplied. The max worth is also called the ceiling. For example, some companies may be valued at 10x revenue and some at 2x revenue.

4. Discounted Cashflow Method:

This method is based on the projections of future cash flows which are adjusted to get the present market worth of the company. It is a more effective method to estimate the value of the company. Discounted Cash Flow method takes consideration of the inflation to calculate the current value. Firstly, calculate your future revenue. To determine future cash flow, project the companies expense and the capital assets. Identify the cash flow’s terminal value. Use this value to get net present value based on formulas.

5. Book value:

Recording the conversions of bonds into stocks is book value. The book value of an asset is carried out to the balance sheet and calculate against the accumulated depreciation. The formula for calculating book value per share= the total common stockholders’ – the preferred stock / the number of common shares of the company. It reflects the total value of an asset that is acquired by the shareholder and it will receivable if the company is liquidated.

Also Read: How to Get Funding For Startup [8 Most Reliable Ways]

6. Liquidation Value:

The amount that is received to each shareholder after paying all liabilities of the company and liquidating the assets when the company is liquidated. This method is can be done by the hired manager or agent. This method is done precisely so it takes time.

In the end, I will refer you to decide precisely which method you want to use to estimate the valuation of your company. You choose these methods according to resources that are available to you or can be easily done by you. If it is too much for you, you don’t have to worry. You can simply hire an agent to do this all work for you. Remember that when you are using the liquidation method or any other method also include the commission of the agent in it. You really need to do the valuation of your business a lot of time during funding rounds. If you don’t know about funding rounds Click here! to learn more.