VALUATION

Why value the Value?

Economic value is the most important measure of corporate performance, when viewed from the perspective of the owner or shareholder of the company. The economic value is the net remuneration of the shareholder for the investment made.

In the real economy, value creation occurs by obtaining return on invested capital above the opportunity cost of capital. The more you invest in returns that are higher than the cost of capital, the more value you create.

Strategies that maximize economic profit and that reaffirm the expectation of growth and future results are as important as the actual performance of the company.

Correct measurement of economic value is a task for experts!

What is Value?

The sale value of a listed company is given to each purchase and sale transaction. But is this the fair value? What would be the value of a closed company (not listed)?

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What is Value?

There are countless ways to calculate the Economic Value of a company. In general, we use discounted cash flow, which proposes that the value of a business should be represented by its long-term cash generation capacity.

The generation of future cash, brought to present value through a discount rate, results in the Company's Economic Value, which subtracted the debts and added the investments [there may be other adjustments], results in the Economic Value of the Shareholders.

The concept of the technique is simple, the sophistication lies in the details that make up the basis of calculation, the projection premises, the calculation of perpetuity and the structure of the discount rate, which combines third-party capital and equity.

When to Evaluate?

Evaluations generally occur in the moments prior to the movement of quotas or shares. Out of the transactions, the Economic Assessment has become an important tool of value management.

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When to Evaluate?

Merger or Consolidation: the companies that will be part of the transaction must be evaluated for the determination of the proportional shares.

Acquisition: the company to be acquired must be evaluated for the composition of the transaction value.

Private Equity & Venture Capital: In transactions involving equity interest, the investee must be evaluated so that the investing capital has the exact proportion of the capital invested.

Closing Activities: when the value of the operating assets is greater than the economic value of the company, it is a sign that it is time to stop;

Value Management: economic value is an important performance variable. Companies that monitor the evolution of their values annually tend to increase them and do not waste transactional opportunities.

What are Comparable Multiples?

It is very common to hear comments that a company is worth "x" annual revenues, and that therefore, the practicality of this model would succumb to the sophisticated structures of the Evaluation by the Discounted Cash Flow Method.

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What are Comparable Multiples?

Comparable multiples are useful! There are Multiples on Sales or Billing, Multiples of EBITDA, Multiples on Asset Value, Multiples of Production Capacity, and Multiples of Transaction.

Aswath Damodaran, an American financier, repeatedly discloses sales and EBITDA multiples by segment and markets using the stock exchange transactions and the balance sheet of these companies.

However, there is no way to compare companies with different profit and capital structures in different markets. Suits are necessary and usually leave something to be desired.

Thus, we use Comparable Multiples only to validate the Economic Value calculated through the Discounted Cash Flow Method.

Methodology

Through the combination of tools and forms of action, we offer our customers flexible formats for this solution.

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Want to know more?

Talk to a specialist in Economic Assessment and understand better how this solution can be useful at the time. If you wish, use our online channel.

Want to know more?

Talk to a specialist in Economic Assessment and understand better how this solution can be useful at the time. If you wish, use our online channel.

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