If you’re thinking of selling your business and don’t want to lose money, you’ve probably asked yourself the following question on one occasion: how much is my company worth?
There are many factors and variables that affect the final price of a company beyond history or reputation, and that is that you have to take into account elements such as machinery, market positioning, branding, etc.
Still, there is no exclusive formula for calculating the value of a company,and therefore not a single value. While for you the value of your company could be 2 million euros, for a prospective buyer it may not reach 1.5 million.
But, even if there is no exact formula, from AYCE Laborytax we will try to solve the question of “how muchmycompany is worth” by showing you five methods that serve to approximate the real value of a company and that are the most used in the business world.
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Tips to know how much my company is worth in the market
1. Book value method
First is the book value method, which isto calculate the own resources of a company that are present on the balance sheet.
To better understand this, the book value method is equivalent to the value of the contributions made by the partners, plus the company’s profits obtained in successive years.
Focusing on accounting terms, it will be the difference between the active and passivevalue, or what is the same, the company’s net worth.
To do this, the following factors must be taken into account:
- Company assets.
- Contributions from partners.
- Furniture and real estate.
- Benefits retained over time.
The following liabilities must also be subtracted:
- Initial credit.
- Book value (assets – liabilities).
This is the most beneficial method for companies with high assets in real estate, machinery, vehicles, furniture,… Etc.
2. Settlement value method
The settlement value is the value of a company after the settlement of the available asset at a given time.
You have to calculate the price of the company’s goods in the market,being the market value what serves to know the value of the company. In this method, asset cost prices are excluded.
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3. Multiple method of sales
the Sales multiple method focuses on the value of a company’s sales. This is used by the guidance calculation after multiplying the capital contributed from the sales of a company by a coefficient, which is usually taken from previous cases of other similar undertakings, or following the analysis of the company’s activity in a previous established period.
4. Dividend value method
The dividend value method calculates the value of a company from the expected dividends for each share. If a company distributes dividends on a regular basis, heat is calculated by dividing the dividend per share by the return demanded by shareholders.
Once the value of each action is calculated, the total value of the company must be calculated, multiplying it by the number of shares in total.
5. Stock market value method
Finally, there would be the stock market value method, which is calculated by dividing the share capital of a company by the number of shares in which the company is divided.
This calculation gives us the face value of astock, which usually fluctuates based on supply and demand on the Stock Exchange.
By multiplying the face value of a stock by the number ofshares, the result will be the market value of the shares, which is better known as market capitalization.
Which method is most effective at calculating the value of my company?
As we told you the principle, there is no star method to calculate the value of a company, since each one is different from another, and therefore the results can be very variable. Mainly, it will depend on the information and needs we have at all times. Therefore, you need to know what they are and try to solve them with the most appropriate method.
If you want to sell a company and don’t want to lose money on the trade, take note of these methods to calculate the value of my company and be sure to sell it for a fair price on the market.