Valuing a company is the process of assessing its market value. This value is important in many situations, particularly when selling or transferring a business, or when seeking financing.
- Estimating the value of a company or a project
- How to add an intangible asset
- Why value dynamically
The financial value of a company is an estimate, which may vary depending on the valuation method used and the criteria taken into account. The final sales price of the business is the result of a negotiation between the seller and the buyer. It is influenced by the financial value of the company, but also by other factors, such as the market situation, the wishes of the seller and the financing capacity of the buyer.
The final sale price of the company reflects both:
- The price you are willing to accept
- And the price that the buyer is able to finance without compromising the future development of the company to be taken over.
It is important to keep in mind that the final sale price of the company reflects both:
- The price the seller is willing to accept
- From the price that the buyer is able to finance
There are two main methods for valuing a company:
- The patrimonial method: it consists of evaluating the company according to its net assets, that is to say the difference between its assets and its debts.
- The comparative method: it consists of comparing the company to other similar companies on the market.
- The profitability method: it consists of evaluating the company according to its ability to generate profits.
In practice, the valuation of a company is often carried out using a combination of the two methods.
To estimate the value of your business, it is important to collect as much information about the company as possible, including:
The criteria taken into account in the estimate are as follows:
- Current and past turnover is an important indicator of the company’s profitability. It is generally calculated over the last 3 to 5 financial years.
- The financial structure of the company is also a factor to consider. A company with high debt will be less valued than a company with a healthy financial situation.
- The customer portfolio is an important asset for the company. It is important to consider customer size, loyalty and profitability.
- Market conditions and competition can impact the value of the business. A company that operates in a fast-growing market will be more valued than a company that operates in a stagnant market.
- The reputation of the company is an important asset. A company that is well known and appreciated by its customers will be more valued than an unknown company.
- The know-how of the company is also a factor to take into account. A company that has unique know-how will be more valued than a company that does not have a particular competitive advantage.
- Material and equipment are elements to take into account, but they are not the main factor in the valuation of the company.
CONTRIBUTION OF AN INTANGIBLE ASSET
A contribution in kind of assets can be added and the value of the contribution in kind of an asset is determined according to its market value, that is to say its resale value on an open market.
- The contribution of a building
- The contribution of a patent, an innovative asset protected or to be protected
- The contribution of a business fund
- The provision of an intellectual property right, a license
The contribution in kind of an asset is an important operation that must be carried out with care. It is important to be accompanied by a qualified professional to evaluate the contributed asset and guarantee that the value of the contribution corresponds to its fair value.
The valuation of the patent is more complex than the valuation of a material asset for several reasons:
- The intangibility of the patent. A patent is an intangible asset, meaning it does not have a physical form. This is an intellectual property right which gives the holder a monopoly on the exploitation of the invention. This intangibility makes the valuation of the patent more difficult, because it is more difficult to assess its real value.
- The specificity of the invention. Each invention is unique and has its own characteristics. This makes it difficult to use standardized valuation methods. It is necessary to adapt the valuation method to each invention according to its field of application, its commercial potential and the associated risks.
- The uncertainty of the future. The value of a patent depends on its ability to generate revenue. However, the future is uncertain and it is impossible to predict with certainty whether the invention will be commercially viable. This makes the valuation of the patent more risky.
Due to these factors, the valuation of the patent is a delicate operation which requires the intervention of an expert. The expert will analyze the invention, its field of application, its commercial potential and the associated risks. It will then use a suitable valuation method to determine the value of the patent.
Here are some factors that can influence the value of a patent:
- The novelty and usefulness of the invention. The newer and more useful the invention, the more likely it is to generate revenue.
- The potential market. The size of the potential market and the competition in that market are important factors to consider.
- Development and marketing costs. Consideration must also be given to the costs required to develop and commercialize the invention.
Patent valuation is an important process for companies wishing to profit from their innovations. It makes it possible to determine the real value of the patent and to make informed decisions regarding its exploitation.
DYNAMIC VALUATION FOR FAIR VALUE
The benefit of dynamic valuation is to take into account the future evolution of cash flows generated by the asset or company to be valued. This provides a more accurate assessment of the true value of the asset or business because it takes into account the potential for future growth.
Dynamic valuation methods are generally based on the discounted cash flow (FTA) calculation. FTA involves discounting the future cash flows of the asset or business to a given date, taking into account the discount rate. The discount rate is a rate of return that reflects the opportunity cost of money.
Dynamic valuation methods have several advantages over static valuation methods:
- They are more realistic, because they take into account the future evolution of cash flows.
- They are more precise, because they allow you to obtain a valuation closer to the real value of the asset or company.
- They are more flexible because they can be tailored to different types of assets or businesses.
Dynamic valuation methods are used in many contexts, including:
- The valuation of a company, particularly in the context of a merger-acquisition operation.
- The valuation of an intangible asset, such as a patent or a trademark.
- The valuation of a financial asset, such as a stock or a bond.
Here are some examples of using dynamic valuation methods:
- A company that wants to be acquired by another company can use a dynamic valuation method to determine its value.
- A company that wishes to assign a patent can use a dynamic valuation method to determine its value.
- An investor who wants to buy stock in a company can use a dynamic valuation method to determine the price they are willing to pay.
The benefit of dynamic valuation is to enable a more precise assessment of the real value of an asset or company. It is used in many contexts and can be adapted to different types of assets or businesses.