Do You Know How to Value a Company or any Income-Producing Asset? |

Do You Know How to Value a Company or any Income-Producing Asset?

Paula Puddy, HBA LLB MBA

Is your client planning on a merger or acquisition to achieve a better competitive position in the marketplace? To grow sales? To lower costs? To take advantage of synergies?

Apparently, over half of all mergers & acquisitions fail to achieve their expected value. As a result, buyer’s often complain they "paid too much".

Have you been asked to negotiate the value, or advise your client on the value of a business? Are you concerned that your client may overpay?

Author and presenter Barry Lipson shares his knowledge on this topic in a recent video entitled "How much is a private company worth?

Barry suggests that the commonly used "multiplier approach" may yield a false value. A more in-depth analysis of the intrinsic value of the company is required. In fact, the market value of the company is the intrinsic value plus the premium a buyer is willing to pay.

During his presentation, Barry suggests that the discounted cash flow method is preferable to other methods such as an asset valuation or comparable worth. Of course, it does depend on the type of business and industry. Barry reviews in detail the discounted cash flow method referencing discount rates, the cost of capital and expected rates of return.

Ultimately, there a large number of variables that impact the premium and the price. However, a better understanding of a company’s intrinsic value will enhance your knowledge and ability to advise your client.

Watch the Video

What is your take?

Does your client ask your opinion on the value of a business? Or, is it left to the accountants? Feel free to contact me and let me know your opinion.

What would you like to see more of?

At CPDonline we serve your learning needs. Is there a topic you would like to learn more about? Please contact me and if we have your topic in our library, I will send you a direct link. If not, we’ll add it to our training wishlist.

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