How do I value my business?

Valuations are not an exact science. They are estimations of value and must take into account the circumstances that the buyer and the seller find themselves in, as well as the prevailing market conditions. There are many methods and industry norms that can be used to value a business. Three of the most common methods are:

1. The Price-to-Earnings multiple method (‘PE method’): This method is most commonly used because it is easy to apply. It entails multiplying the maintainable earnings of a business by a factor. The PE ratios of comparable companies listed on the JSE can serve as a comparison in order to establish the factor. This is a highly subjective method as people usually have different views regarding what the maintainable earnings of the business are and what the factor should be.

2. Net Asset Value method (‘NAV method’): Value is determined by deducting the liabilities of a business from the market value (not book value) of its assets. This is generally only suitable for businesses with a large amount of fixed assets. It simulates what could be realized from the break-up of the business and the sale of its assets. It is not suitable for companies with strong growth potential or companies with high levels of intangible value such as trademarks, patents or other forms of intellectual property.

3. Discounted Free Cash Flow (‘DCF method’): This is the most complex to apply, yet the most mathematically sound. It entails calculating the present value of the future free cash that the business will produce over the remainder of its life span.

In addition, certain industries have valuation norms that are used to value businesses. These are sometimes based on a combination of the PE method and the NAV method.




 
 


No Future Without Forgiveness by Desmond Tutu

“April 27, 1994 – the day for which we had waited all these many long years, the day for which the struggle against apartheid had been waged, for which so many of our people had been tear gassed, bitten by police dogs, struck with quirts and batons...
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April 27 and Pointbreak have formed an association in terms whereof they will utilize their combined expertise in delivering innovative solutions and services to the clients of both companies. Pointbreak will furthermore provide representation for April 27 in the Western Cape until such time as April 27 establishes its own office in the region.

 

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