Business Valuation Calculator
Business valuation calculator takes the average of DCF and PE method valuation. DCF method estimates the value of a company using its expected future cash flows discounted to arrive at a present value of a company.
1. Valuation based on DCF
| Particulars | Actual | Projected | Amount | ||||
|---|---|---|---|---|---|---|---|
| Financial Year | FY | 1 | 2 | 3 | 4 | 5 | |
| PAT | 0 | 0 | 0 | 0 | 0 | 0 | |
| Cash Flows | 0 | 0 | 0 | 0 | 0 | 0 | |
| Discounting Factor | 0 | 0 | 0 | 0 | 0 | 0 | |
| Discounted Cash Flow | 0 | 0 | 0 | 0 | 0 | 0 | |
| Valuation based on DCF | 0 | ||||||
2. Valuation based on PE multiple
| PAT | |
| PE Multiple | |
| Valuation based on PE Multiple |
| Average Valuation of the Company |
Valuation Guide
Valuation is one of the most important steps of an Initial Public Offer of the Company. Valuation is a subjective exercise and involves numerous inputs and judgements. The outcome of the valuation decides the overall value of the Company at which a company can raise funds from the market through listing.
There are multiple methods to value a company. Some of the key methods are enumerated below:
Valuation based on the Net worth of the Company
The simplest and most traditional way to value a Company is through its Net worth as on the reporting date. Net worth of the Company is total of its equity + accumulated reserves. Net worth reflects overall net value of the investment in the Company by its equity shareholders. In other words, Net worth is the book value of the Company.
Valuation based on the Discounted cash flows (DCF)
DCF is considered as one the most scientific and acceptable method for valuation of the Company. DCF involves projections of the Company's revenues, profits and cash flows. For this, the management of the Company would need to provide extensive inputs to the Valuer.
Under this method, the Valuer will first make the future projections of the Company considering its expected growth and other key business factors. Usually, projections are made for next 3-5 years and post that a terminal growth rate is assumed. Once these projections are made, this will be discounted by applying a suitable discounting factor. A discounting factor is a rate by which future cash flows of the company are discounted to arrive at the present value of the Company. A discount rate is generally arrived at by computing a weighted average cost of capital (WACC) of the investor or alternatively for equity investor it can be minimum expected rate of return from investment.
Valuation based on earnings or book value multiple
Under this method, Company's Earning per share (EPS) and/or book value per share is determined. The earnings or book value is then multiplied with a suitable multiple factor. This multiple factor is arrived from prevailing Price to Earning (P/E) or price to book in the market for the same industry players.
Valuations based on identical transaction in the market (Relative valuation)
This is one of the most common and widely used valuation techniques. Under this method, the Valuer would identify the recent transactions in the market (domestic or international) for similar industry. Basis that transaction, a reference multiple will be calculated with suitable adjustments. From these multiples, a value of the Company can be arrived.
Enterprise value (EV)
Enterprise value is the total value of the Company. Now, after carrying out the valuation of the Company under different methods, the Valuer would consider weighted average of all the methods by applying suitable multiples and arrive at the Enterprise value.
Conclusion
Valuation is one of the most crucial exercise for any kind of fund raise activity including the IPO. The process involves lot of assumptions and judgments and hence it is imperative to carry out this exercise with utmost precision.
What is Valuation?
Valuation is a process which aims at ascertaining a company's business value for the purpose of fund- raise activity. There are different valuation methods.
What are the different valuation methods?
Net Worth Method, Discounted cash flow method, valuation based on Earnings or Book Value multiple, Relative Valuation method and Enterprise Valuation method.
What is meant by discounted cash flow method (DCF)?
Discounted cash flow refers to a valuation method that estimates the value of an investment using its expected future cash flows. It determines the intrinsic value of a business.
What is meant by net worth method of valuation?
Net Worth method is the most traditional method of valuation. It is the book value of a business.
What is meant by relative valuation?
Relative valuation method is used to value companies by comparing them to other businesses based using certain financial parameters like P/E ratio.
What is P/E ratio?
P/E is price to earnings ratio. Simply put, it is the ratio of share price of a stock to its earning per share.
What is Earning Per Share?
It is a measure of a company's profitability which shows profits earned by equity shareholders per share.