Determining the value of companies is a science in itself and accordingly there are entire companies that have specialised in this field. At Atlanto, we want to give you the opportunity to get an overview of the range of your company’s value with just a few clicks.
The possible approaches to a business valuation are very diverse. We have therefore already prepared five common assessment methods for you and only need a few assumptions from you for each one.
Discounted cash flow With this method, your future cash flows (i.e. liquidity increases or decreases) are discounted with a so-called cost of capital rate. This calculates the value of your future cash flows at the present time. This method assumes that your cash flows (based on the last plan year) will grow consistently each year. For the calculation we need your assumed cost of capital and your assumed growth rate. The cost of capital rate indicates the interest rate at which your future cash flows are discounted (discounted backwards). Calculating the cost of capital is again a science in itself, but we recommend you assume a value between 5-12%. For the growth rate, we recommend that you use past years as a guide, if possible. If you have just started your business, we recommend an estimate between 5-20%.
Substance value The net asset value method is probably the simplest way to value your business. Only your current and fixed assets are added together, the hidden reserves are added and the expected taxes are deducted. It should be noted that this method does not take into account your future success and is therefore a snapshot. This means that as long as your company generates profits in the future, a comparatively lower enterprise value will result. By estimating your future growth rate, we can nevertheless make an approximate assessment of how your enterprise value could develop in future years according to the net asset value method.
Earned value The capitalised earnings method is a type of valuation that takes into account your current and projected future profits. In contrast to the net asset value method, your current assets play no role in this calculation. Similar to discounted cash flow, your profits are discounted at the cost of capital. However, this is not infinite, but only over your planning periods. In order to make this calculation, we need your assumed cost of capital (see Discounted Cash Flow).
Practitioner method The practitioner method is a middle way between the capitalised earnings value method and the net asset value method. Especially for SMEs, this type of valuation is often used. The practitioner method takes into account both your assets and your future profits and is therefore considered more realistic than only one of the other two methods. In addition, this method is also used by tax authorities to calculate the fair values of unlisted companies. The formula is as follows:
The formula shows that these methods take your profits into account more than your assets. In order for us to calculate your enterprise value using this method, we need your assumed cost of capital (see Discounted Cash Flow).
EBIT multiples For the last of the methods selected for you to calculate your company’s value, we compare your company with a listed company that is active in the same industry as you. Specifically, this method looks at the relationship between EBIT (earnings before interest and taxes) and the market capitalisation of a publicly traded company that is similar to your company. This calculation results in the so-called multiple. The calculation of the multiple is as follows:
Your EBIT is then multiplied by the multiple to arrive at your approximate enterprise value. However, it is important to remember that companies are never the same, but only similar. That is why this method is mainly suitable for controlling another method. In order for us to be able to calculate your company value according to the EBIT multiples method, we need the multiple calculated by you for a comparable company.
