Report company valuation

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Definition

Evaluate a company is a difficult task that requires strong legal knowledge, financial and years of practice. It is strongly advised to seek the advice of an evaluation specialist. It should be noted that an evaluation can be carried out during various operations: Mergers and acquisitions, restructuring, divestiture, etc.

Each situation is specific, and it is necessary to determine beforehand the appraiser's mission, the budget allocated, the time allotted, the timing, the useful data, the confidentiality requirements of the evaluator, etc. Its elements must be linked to the size of the company and the complexity of the file so that the approach remains coherent.

Why evaluation?

Corporate evaluation operation is not a simple operation because many players in the economic life are interested in it; Savers, bankers, managers, shareholders, shareholders, experts ....It is based on the concept of market finance, and therefore on the maximization of value in the eyes of shareholders.

Approach to Evaluation

A good business evaluation approach is based on a rigorous method of work. The approach is as important as the result, in that it forces the evaluator and the entrepreneur to look seriously and lucidly for the strengths and weaknesses of the company.

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How it works[pic 7]

Evaluation methods

1. Discounted Cash Flow

A discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used to evaluate the potential for investment.
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3 flow types can be used in the DCF model:

• Free Cash Flow to Firm (FCFF):

(Operating income- Income tax)+Depreciation, amortization and provisions (- reversals)- Change in working capital requirement-investments= Free Cash Flow to Firm (FCFF)

                  Flows available to all capital providers[pic 9]

• Free Cash Flow to Equity:

FEDN- Financial expenses+ Financial Products- Debt refund+ New borrowings+ Tax savings = Free Cash Flow to Equity

                Shareholder flows[pic 10]

• Dividends

They Are the Dividends paid. Cash flow available to minority shareholders.

1. The multiple method

The multiple method consists of determining the value of a company by defining a sample of comparable companies and then determining financial standards of comparison. This method of multiples can be applied both to the company's result, for example, to its gross operating surplus. The most frequent application in the stock market is the number of times the net earnings per share is included in the share price

3 paramètres fondamentaux déterminent le niveau des multiples de valorisation :

1. Growth of results :

• A strong correlation exists between the expected growth of the results and the level of the multiples observed:
• strong growth prospects correspond to high multiples and conversely (all things being equal)
• In a growth situation, high current multiples Correspond to future low multiples

1. Risk of the economic asset

• The assessment of the economic risk may lead to low multiples despite strong growth prospects,
• The higher the economic risk, the lower the multiples (and vice versa),
• The sensitivity of economic risk depends on the financial structure.

1. Interest rate

• A strong correlation exists between the level of interest rates in the economy and the inverse of multiples (REX, PER)
• A high interest rates correspond to low multiples and conversely.
• The rates of return increase the profitability demanded by investors and reduce the value of the economic asset.

Calculation

P / Cv = Company Value/ turnover     OR      P/EBIT = Company Value / EBIT

1. Patrimonial method

Mixing of previous methods through taking into account goodwill. The value of an enterprise is normally described by the elements of its balance sheet (representing assets), but the latter does not clearly indicate the exact value of the enterprise: a range of values must be calculated.

The most comprehensive method is the calculation of adjusted net assets value (or other related items such as gross present value or net operating assets). It should be noted that discounting the difference between this asset multiplied by the risk-free rate, minus the profit generated by this asset is a way of calculating goodwill (the goodwill of the company) .

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