Company valuation is the process of determining the economic value of a business and provides owners with an objective estimate of the value of their company. Generally, company valuation occurs when an owner wishes to sell all or part of his business or merge with another company. Other reasons to refer to a company valuation include whether you need debt or equity to grow your business, need a more thorough tax analysis, or plan to add shareholders. In this latter case, the value of the shares will also need to be determined.
The valuation process tells you how much the company is worth in current market conditions by analyzing all aspects of the business, including the company’s management, capital structure, future earnings, and market value of its assets.
Valuation methods may differ according to the structure of the sector in which the company is located, the structure of the company and the opinions of the valuer. Some of the most common valuation methods include comparing similar companies, discounting cash flow models, and reviewing financial statements.