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Business Valuation: why is it relevant?

28 03 2022 Corporate Finance
Business Valuation: why is it relevant?

The company valuation process is widely used and aims to achieve the fair value of the company. The value of a company or business depends on many factors, namely the continuity scenario and macro and microeconomic assumptions. it also depends on the perspective of the interlocutors, whether they are partners and/or shareholders, administrators or managers or creditors.

Any decision made to improve a businessess productivity or competitiveness must consider the company value, so it is important to ensure that you are in possession of up-to-date information in a timely manner. You never know when a growth opportunity may arise, whether through the entry of investors into the company's capital or through a process of mergers and acquisitions!


Company Valuation: 3 different perspectives

There are 3 different perspectives that are usually used in the business valuation process.

  1. Market Perspective: It is the most used in the context of Mergers & Acquisitions, reflecting the way the company is seen by the market. It uses databases of comparable national and international transactions in different sectors of activity, allowing to obtain average market multiples subsequently applied to the Company's profitability indicators (normally, EBITDA, EBIT or sales) allowing to obtain the Enterprise Value (company value) . By deducting the financial debt and adding Cash and financial investments, the Equity Value is calculated.
  2. Income Perspective: Implies the creation of forecast financial statements based on macro and microeconomic assumptions, with Business Value corresponding to the sum of expected future income, updated at a rate that reflects the weighted average cost of capital (WACC ).
  3. Equity Perspective: Most used in the context of company liquidation. It seeks to determine the calculation of Adjusted Net Equity, with Assets and Liabilities adjusted to market value and after necessary accounting corrections. Special attention must be paid to the value of properties and equipment (which may require an independent assessment), as well as checking other relevant items such as Customers and Inventories.

Knowing the value of a company is a necessity for anyone who needs to buy, sell or carry out a merger or spin-off. And also for those who need this strategic information. This assessment must be carried out periodically to update values, following market trends and changes made to the company.

Want to know more? Count on our support to valuate your business and get ready to take a qualitative leap in your company's growth!



For more information, schedule a free no-obligation meeting with our experts by calling: +351 21 330 72 02, or send your questions to:

Paulo Isidoro | Corporate Finance Consultant


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