If you want to know what your business is worth, there are a number of ways to give it a monetary value.Any eventual sale price of your business will be negotiated between you and the buyers.Any value you come up with from these calculations won't be set in stone.For providing a baseline from which you can argue for your business's value, these calculations are useful.
Step 1: Determine your business's book value.
Think of your business's book value as its net worth.What would you leave if you sold the assets to pay off the debts?Your business's book value is calculated by adding up all of its assets, like cash, equipment, vehicles and buildings, and subtracting any liabilities like loans and intangible assets.You will have a book value for your business.Book value ignores things like future profits or intangible assets.The lowest value will almost always be returned by it.
Step 2: Determine the market value of your business.
The market value of a company depends on how investors perceive it.It is defined as the price a business would sell for on the open market, if the seller and buyer are aware of all relevant facts and acting in their own interest.Market value can be calculated for both public and private companies.See how to calculate the market of a company.Market value can be calculated if your business is publicly traded.This is the value of all of the company's stock.The current market price is times the number of shares.You can estimate the market value of a business by looking at similar businesses that have been sold recently.Look for businesses similar in size and industry to yours that have recently been sold and use these prices as an estimate to value your company.Multiples can be used to value companies.A business metric by an industry-average multiple is used to determine a valuation.If an industry has an average valuation of 20x earnings, it means that companies in that industry could be estimated at 20 times their profit.
Step 3: Cash flows can be used to assess value.
Finance professionals use a method called discounted free cash flows analysis.This method involves estimating the business' income stream over time.The value is adjusted based on the risk of income falling.A terminal business value is assigned based on what the business is expected to be worth at the end of the projection period.The present value of the business or what it is worth today is determined by the discounting calculation.This method is complex and can result in a wide variety of variations for your company.Unless you are a financial professional, you should hire a consulting firm or bank to do this type of valuation.
Step 4: Evaluate intangible assets.
Unlike property or cash, intangible assets are owned by a company that can't be touched.Adding value to the company is what they do.Intellectual property, goodwill, and brand recognition are some of the intangibles assets.The value of a business can be influenced by these.In the case of goodwill, intangible assets can sometimes be held on a balance sheet, but most are the result of an accounting judgement.You can argue your case for your business's brand recognition or intellectual property value.Market data or the value of similar intangibles in other companies can be used to back up your argument.
Step 5: Analyze the profitability of your business.
Assessing your business's performance starts with determining how profitable it is.You should be able to see this information on your income statements.How you assess your business will affect the numbers you want to examine on your income statement.Net income, also known as the bottom line, is the most common metric used to evaluate profitability.After depreciation, interest expense, and taxes, this is your actual profit.You can see how to calculate net income.You can look at different parts of the income statement for efficiency and profitability.Divide your revenue by your cost of goods sold to find manufacturing efficiency.You can know how well you are converting manufacturing costs to revenue.Profitability is determined by earnings before interest, taxes, depreciation and amortization.Net income includes interest, taxes, depreciation, and amortization expenses.This is a simple way to measure a company's operating performance without having to factor in financing and accounting decisions or compare companies in different tax environments.
Step 6: Determine how much of your business is dependent on it.
The amount of your business's operations financed by debt is known as leverage.Because of the chance that a company could fail to make payments, leverage is often seen as a risk.The debt-to-equity ratio is one of the best ways to evaluate a business.This ratio is found by dividing total debt by total equity.A high ratio shows that the company has a lot of debt.Determining whether a company can remain profitable while using debt financing is the key.If the company is growing and profitable, but still taking risks, it seems to handle them well.Stable income and cash flow is required by utilities companies to maintain stability.
Step 7: Evaluate your business's growth.
To get a sense of where your business is going, look at revenue and profit growth over the past few years.Are your revenues growing consistently?Is your profits stagnant or growing?If one of the two is not growing, this could be a sign that your marketing is failing or that you are overspending.An investigation of business practices is needed so that a change can be made.To figure out how the economy will affect your business's performance in the future, you should analyze market trends.
Step 8: The financial ratios should be checked.
Sales and operating ratios should be calculated while analyzing the balance sheet, income statement, and statement of cash flows.Return on assets, return on equity, and debt to equity are some of the key ratios.Over the last three to five years, look for trends in the ratios.One of the most valuable ratios is the price-to-earnings ratio.Divide the share price by the earning per share to find it.The amount investors are willing to pay for a company's earnings is represented by this value.Since it costs less for the same level of financial performance, a stock with a lower P/E ratio is a better investment choice.Since expected performance varies, don't compare the P/E ratio in different industries.The current ratio is used to calculate a business's ability to pay off its debts.It can be found by dividing assets by liabilities.A high ratio shows that a business can pay off its debts and is in good financial health.Sales are divided by inventory turnover.This shows the number of times an inventory is turned over or sold to customers.The company can effectively move product if the ratio is high.The receivables turnover ratio is calculated by dividing net credit sales by average accounts receivable balance for the period.This shows the effectiveness of the company in collecting on customer orders.A high value is preferred.A company's return on assets is used to show how it uses its assess to produce profits.Net income is divided by total assets.Return on equity shows the relationship between money invested by shareholders and profits.Return on Equity is calculated by dividing net income by shareholder's equity.The debt to equity ratio shows how a company has been financed.It can be calculated using shareholder's equity.