In a complex and ever-changing environment, it is imperative that companies implementing a transaction or calculating Net Value on their BEE scorecard have a clear understanding of their company value. Transcend Capital provides its clients with an independent, technically proficient valuation service based on the principles of fair market value.
When valuing a company there is no single standard or specific method, but rather a variety of approaches, with the most common being:
- Income-based approach – Discounted Cash Flow (DCF)
- Market-based approach – Trading Multiples
- Asset-based approach – Net Asset Value (NAV)
The mechanics of the above valuation methodologies are set-out below:
Method 1: Income-based approach – DCF
The DCF methodology is the most consistent valuation method, which is based on the anticipated future cash flows of the business. These projected future cash flows are discounted together with the value of the company in perpetuity. The discount rate utilised is the rate of return that accounts for the time value of money and considers the risks associated with the business.
For larger businesses, the DCF value is often a sum-of-the-parts analysis, where different business units are modelled individually and added together.
Method 2: Market-based approach – Trading Multiples
The market-based approach also called comparable company analysis, trading multiples or peer group analysis is a valuation method in which you compare the current value of a business to other similar publicly traded businesses and transactions in its industry. This is often done by looking at trading multiples like P/E, EV/EBITDA, or other ratios.
This method is often used as a complementary or confirmatory approach to the DCF valuation results.
Method 3: Asset-based approach – NAV
The NAV methodology is useful in valuing non-trading businesses which are primarily asset-based, e.g. property and commodity companies. This approach is used to determine the cost to build or the replacement cost of an asset. It is also a useful methodology when the “going concern” assumption is no longer applicable to the entity being valued.
If you need need a valuation for:
- Selling your company;
- Introducing a BEE Shareholder or Employee Share Scheme;
- To ascertain your Net Value points.
Contact us and one of our consultants will get in touch.