Usually, worth valuations reports are in conjunction with specific goals such as fundraising, strategic partners, financial investors, legal issues, selling or buying.
How can we assure that an appraisal of a certain business is accurate and reflects the real value that gains the trust of potential buyers and investors? In many cases, appraisals for the same business differ from each other and it makes it hard to understand why and by using the same data, how can results be so different. The answer is pinned in the number of variables and their weigh. It also depends upon which market and kinds of products we target.
It makes a big difference if we believe that the business can broaden its activities to different parts of the world and/or be working with international suppliers that can lower the costs. Some may say that assessors must analyze only the current state of the company, but nobody is a fool. Sellers and buyers know exactly what is in stake and need to negotiate about costs for achieving and/or striving future goals such as a volume of sales etc.
Basic variables of worth valuations are as follows:
· Past and predicted trends in sales and related costs
· Suppliers and Cliental debts
· Constant and variable costs
· Profit categories
· Cost categories
· Organizational structure
· Market positioning
· Contemporary market research for current state and future trends
· Capitalization and interest rates – Investor’s expectations
· Trends of currencies exchange rates
· P&L forecast assumptions
Each variable needs special treatment. Assessors can analyze variables in some different ways, hence getting different results because of future presumptions, under the same database. The analysis also needs to be derived from a database of at least 6-8 years and also focusing on how the decision makers tackle contemporary hurdles and their contemplation as well as actions regarding these hurdles.
There are also different methods to evaluate worth. Some can analyze only the business perspectives and some may analyze them from the investors perspective. This difference may lead to different results and it is important to know all kinds of venues for assessing the business.
Usually and the most common method of worth valuations and regardless of what is mentioned above is the DCF or cash flows. Apparently, this is how investors analyze worth, but in our opinion, another and very important factor must be embedded: The recurrent yield of investors. In this way, each variable is assessed, examine and goes through a sensitivity test from the investors perspective after they get their interest or profit. If we miss it, we leave investors in figuring out how they can withdraw earnings (At the same way of issuing bonds) and it makes it hard to assess properly. This preferable way shows investors their safer way of evaluating their yield in the short and long terms by performing cross-variable sensitivity analysis, besides nominal reports and NPV (net present value) reports.
Ron Cowley El Haneches Real Estate