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The 9 objectives in company valuation

We are together in each step

The value is different for buyers and sellers

Normally, the development of objectives in the company valuation takes place in the environment of some kind of economic transaction. An enterprise has different value for different buyers and for the seller.

Different perceptions of value in a company by the buyer and the seller affect business valuation objectives.

For example, a large, technologically advanced foreign company wishing to buy another well-known domestic company in order to enter our market, taking advantage of the reputation of the local brand, will only value the brand, but will only value the brand, but will not value the brand itself. will not value installations, machinery, etc.It has more advanced assets at its disposal.

The seller, on the other hand, will value his material resources very highly since they are in a position to continue producing. From the former's point of view, it is a question of determining the maximum value, and from the seller's point of view, it is a question of knowing what the minimum value at which he should sell will be.

These two figures are the ones that are confronted in a negotiation in which a price is finally agreed upon that is usually somewhere in between the two. A company may also be worth different values to different buyers for different reasons: different perceptions of the future of the industry and the company, different strategies, economies of scale, economies of complementarity, etc.

An assessment serves many different purposes:

  • Purchase and sale transactions
  • Valuations of publicly listed companies
  • Initial public offerings
  • Inheritance and wills
  • Value-based remuneration systems
  • Identification of the value drivers
  • Strategic business continuity decisions
  • Strategic planning
  • Arbitration proceedings

9 objectives in the valuation of a company

1. Sale and purchase transactions.

  • In the valuation objectives, for the buyer, it indicates the maximum price to be paid.
  • For the seller, the valuation indicates the minimum price at which the seller must sell. It also provides an estimate of how much different buyers may be willing to offer.

2. Valuations of listed companies.

  • The valuation is used to compare the value obtained with the market price of the share and to decide whether to sell, buy or hold the shares.
  • The valuation of several companies is used to decide on which stocks to concentrate your portfolio: those that seem to you to be most undervalued by the market.
  • The valuation of several companies and their performance is used to make comparisons between them and to adopt strategies.

3. Initial public offerings.

Valuation is the means of justifying the price at which shares are offered to the public, which is an objective in the valuation of companies.

4. Inheritance and wills.

Valuation is used to compare the value of shares with the value of other assets.

5. Value-based remuneration systems.

The valuation of a company or business unit is fundamental to quantifying the value creation attributable to the management being evaluated.

6. Identification of value drivers.

  • The valuation process of a company or a business unit is essential to identify and prioritise the main value drivers.
  • Valuation makes it possible to identify the sources of value creation and destruction.

The 9 objectives in company valuation

7. Strategic decisions on business continuity .

The valuation of a company and its business units is a preliminary step to the decision to: stay in business, sell, merge, milk, grow or buy other companies.

8. Strategic planning.

  • The assessment of the company and the different business units is fundamental to decide which products/business lines/countries/customers... to maintain, strengthen or abandon.
  • Valuation allows the impact of the company's possible policies and strategies on value creation and destruction to be measured.

9. Arbitration proceedings.

  • Targets in the valuation of a company are a requirement to be presented by the parties in pricing disputes.
  • The best-supported assessment is usually closer to the decision of the arbitration court.

There is also an intermediate position that considers the points of view of the buyer and seller and is represented by the figure of the neutral arbitrator. Arbitration is being used more and more frequently in disputes such as, for example, in the sale and purchase of companies, in the resolution of contracts or in cases of division of estates due to inheritance, among others.

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