The term valuation is generally synonymous with start-up companies. Actually, a valuation method is not limited to start-up companies but can be used for any company. Generally, valuation is an effort in the form of an appraisal report of a company providing goods and services by measuring all interrelated components.
In addition, valuation is a dynamic appraisal report. Many factors can influence and change the company’s valuation report at any time. The elements in question include; sales performance, business model, management quality, branding, competitors, assets, etc.
Benefits of Valuation Calculation
The existence of company valuation activities can make the overall business performance increase. Therefore, it is essential for companies to carry out these activities. Here are some of the benefits:
Open access to investment
With the company’s valuation, we can open up opportunities for investors to spend their funds. Presenting the appraisal report in its entirety to investors. From there, they will have considerations in obtaining business potential from the company’s appraisal report.
Business acquisition made easier
Valuation will be an essential aspect for a company if it wants to be acquired by another company. Through this report, the acquiring company will get an objective assessment of the value of the business so that the negotiation process can take place based on the business appraisal report.
Assist in the decision-making process
Companies will have careful consideration in making strategic decisions through valuation. If the yield is high, a company tends to expand its business. Conversely, if the business appraisal report is low, the company tends to merge or even sell the business.
Through business appraisal reports, companies can conduct evaluations. Companies can find out whether the current business is experiencing good development or not.
Understanding the selling value of the company
Finally, with valuation, we can find out how high the company’s selling value is. It will be advantageous when we want to do a merger or sell the business.
Also read: What is a Prospect? Here are the uses for your business
How to Calculate Company Valuation
There are several ways to do a company appraisal report. Here’s the explanation:
The calculation method with this method is to multiply the company’s profit. For example, if a company has a net profit of IDR 80 million per year with multiple valuations (VM) of 4. So the company’s business valuation report is IDR 320 million. From the investor’s point of view, the company has a profit of Rp 80 million per year with an investment capital of Rp 320 million.
Comparison is a reasonably simple way. By comparing the company’s business with similar businesses and the company’s appraisal report is known. It would help if you remembered that you must use the proper comparison business to use this method.
Discounted Cash Flow (DCF)
This DCF method is quite different from the previous two methods. DCF does this by considering the inflation aspect to get the present value (PV) of the company’s business. First, this method requires estimating the income and expenses of the business in the next few years so that we will get a net cash flow.
Lastly, there is the asset valuation method. This method considers the total selling value of the company’s assets. In addition, we can estimate the sale value and make debt payments. Which result is a business assessment report from the company.
Read related article: Transactions: Definition, Types, Forms, and Benefits
Valuation and profit
Of course, several aspects must be considered in building a business. Not only must a company focus on valuation, but it must also pay attention to the profit they earn because yield and business valuation have the same importance. The following is an explanation of profit and valuation:
Difference between Business Valuation and Business Profit
As we have discussed, valuation is the process of identifying and measuring the financial benefits of an asset. While business profit is the yield that exists from the business that we live in. Profit is different from turnover. If turnover is gross profit, then profit is net profit.
Combination of Valuation and Profit
The combination of valuation and profit is essential for a company. Of course, if you want to get more significant profits continuously, it must be accompanied by a more extensive business appraisal report from this company.
Pay attention to the dynamic aspects of movement
We must be aware of the rapid development of the environment around us. If the company wants to continue to exist, innovation becomes an essential aspect for a business, whether it’s in small things or other things outside the company’s linear. In the business world itself, AI is a highly developed technology that is often used. AI has many functions, especially in terms of effectiveness and efficiency of work.
Various business decisions and policies will also be easier to determine. In addition, data collection will also be easy to do and stored properly. Moreover, data is a vital asset in a business.
That’s the discussion this time about company valuation. Now we know how important an appraisal report is for a business or company. There are many benefits that we can take with the valuation. In addition, do not forget that apart from this there are several aspects in a company such as profit that is no less important.
A good valuation report certainly goes hand in hand with good financial management. If you have an interest in managing software-based company finances, don’t hesitate to contact us. Hashmicro provides ERP Accounting System. Assist companies in managing software-based company finances. Click here if you are interested in collaborating.