In today’s world, the very purpose of starting up and conducting business is changing. Often businesses are started with a clear vision of attaining a higher valuation level and selling the business to relevant buyers. With such a shift in focus and with the increased activity, the need for and instances of valuation is on the rise.
Simply put; a valuation is the opinion from business valuation companies, who understand the industry in which the assets are being valued and has acquired (this requires thorough investigation) all required data and facts about the business being valued. After this, the expert evaluates the data and does a comparative analysis of the internal and external forces which will affect the enterprise. By analyzing these forces (along with the market data, historical sales and other possible investments compared to the business); the valuation company can then establish their belief on what the business is worth.
There are 4 commonly used business valuation methods, namely:
- Asset Valuation Method: This helps you identify the exact worth of the business, if the business were to close down today. This method accounts for all the assets and liabilities.
- Price Earnings Ratio: The price earnings ratio (P/E ratio) is the value of a business divided by its profits after tax. When valuing a business, you can use the equation: Value = Earnings after tax × P/E ratio.
- Capitalized future earnings: When taking over a business, you take in the assets as well the right to future profits, known as future earnings. In this case, the future earnings are ‘capitalized’, or given an expected value. The capitalization value gives the expected rate of return on investment (ROI), shown as a percentage or ratio.
At PKF UAE, they have extensive cross-industry experience in providing company valuation services in Dubai. This puts them in an ideal position to conduct a valuation exercise suited to your requirements. Depending on your specific need and the prevailing business environment, PKF UAE adopts pertinent methodologies and a logical approach.