Financial Advisory and Consulting Department

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Business Valuations

Business valuation is an important and useful tool in any investment feasibility test, economic decision making process, execution of merger and acquisition transactions, tax planning and a wide range of other situations.

Performance of business valuation (companies, segments, operations, projects, both incorporated or being a part of an entity and not corporate businesses) involves a use of number of generally accepted methods and valuation techniques, such as:

• Discount cash flows method is based on estimation of a business' ability of producing future cash flows. These future cash flows are discounted to their present value while using a discount rate which corresponds to the risk implied in a business subject to the valuation and reflects return an investor would expect to receive from business with similar risk level.

• Comparable transactions method makes a reference to prices paid in transactions that have recently taken place in respect of the evaluated businesses or assets or other transactions in the industry that are similar to the transaction under consideration. Such comparable transactions are relevant as long as they happened reasonably close to the evaluation date. 

• Net book value or net assets value is based on book assets value net of book liabilities value of the evaluated business as they are reflected in its balance sheet. Different variations of this method of valuation might also involve certain adjustments made to the book values of assets and liabilities while trying to approach their market value.

•  Multiple valuation method estimates value of a business based on industry average ratios between market value of equity and different accounting parameters. Widely accepted parameters are revenues, net profit, operating profit and book value of equity.  

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