How much is my business worth?
Business valuation is an essential tool for preparing the business sale and purchase negotiations and for having a deep understanding of the key internal and external variables that affect the creation of value in your business.
From an economic point of view, your business creates value when generates income higher than the costs of producing that income, including costs of the capital used. This value belongs to the business shareholders because they managed to get higher returns on invested capital than the cost of capital. As a general rule, if your company can create value for you, it also creates value for your employees, customers, suppliers, and other stakeholders.
To create value, you should have a deep understanding of the performance of variables significantly affecting business value. A positive value results from improving the generation of cash flow from operations and minimizing the cost of capital through decisions related to the capital structure. The value drivers determine the cash flow from operations and it is affected by the operational and investment decisions made.
Putting the value of the company as the focus of the business activity reduces the risks of capital going to other companies, having to pay higher interest rates, facing greater pressure from interested parties, being the target of hostile purchases, and lower productivity.
Among the techniques available to measure the performance of a company in value creation, business valuation through Discounted Cash Flows (CDF) methodology, provides knowledge not only about the business value range but also about the variables key that create value in the business. Periodic measurement of the business’s ability to create cash is a healthy practice to support strategic.decisions.