How to Value a Business?


Company valuations are regularly required:

  1. when buying or selling a company
  2. when raising finance or equity
  3. to motivate management
  4. for inheritance planning
There's no "right" way to value a company. A company is worth whatever you think its worth, based on the criteria you use to estimate the value.

Methods to value a business

There are several different methods to value a business, some of the most common are:
  1. Asset valuation – this focuses entirely on the balance sheet and the book value of assets minus any relevant liabilities.
  1. Price/earnings valuation – the P/E ratio * the most recent after tax profits. You must decide on an appropriate P/E ratio, which is the value of a business divided by its profit after tax.
  1. Entry cost valuation – how much would it cost to set up the company from scratch.
  1. Discounted cashflow valuation - value of a company today is equal to the present value of the future (but uncertain) cash flows to be generated by the company, discounted at a rate that reflects the riskiness (or uncertainty) of those cash flows.
  1. Industry/market comparable valuation – comparing your business to traded companies or recent private transactions in the same industry.
These techniques value the financial side of the business. Non-financial considerations (customers, contracts, key staff etc) also come into play and should be considered along with at least two of the above methods to arrive at a range of value for the company.

What questions do you have?

We are happy to help. Please post your comment below or call Lisa Byrne, Audit Manager at Cooney Carey, on 01 677 9000. Alternatively, send her an email: lbyrne@cooneycarey.ie 

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