Methods for evaluating companies

Methods for evaluating companies



Contents

  • 1 Corporate Valuation
    • 1.1 Reasons for evaluating companies
    • 1.2 Steps to evaluate companies
    • 1.3 Methods for evaluating companies

Corporate valuation

It is a financial, accounting method used to determine the financial position of the company in the local market, and the evaluation of companies is also known as the method used by financial analysts, and management accountants to know the total financial value of the company, and is linked to determining the value of assets, liabilities, and any other financial restrictions that arise from the company And, the evaluation of companies aims to determine the financial position of them, and knowledge of their ability to continue in the economic market within its field of work, and also contributes to reaching results that provide an appropriate description of the general condition of the company.

Reasons for evaluating companies

  • It contributes to determining the net worth of corporate equity.
  • The value of the liabilities, expenses and debts arising from the result of the companies' work is determined.
  • It helps determine the value of the company's shares before offering them on the financial market for trading.
  • It is considered a support tool for the merger of companies.
  • It provides real values ​​for the shares of the partners in the joint-stock companies, especially if one of the partners wants to sell his share in the company.
  • It assists in liquidating companies in order to sell them, or to close them completely.


Steps to evaluate companies

  • Preparing a list that includes all of the company’s external and internal contents, taking care to add all the information related to the company, whatever its nature.
  • Using one of the companies evaluation methods to start setting the stages that will be relied upon in the evaluation of the company.
  • Knowing the financial position of the company, the value of its capital, and the shareholders' equity in the capital or business.
  • Study the legal status of the company through the use of an expert in law, to ensure that legal texts are applied to the nature of the company's work.
  • End all suspended financial transactions, or that have not ended yet, especially if the company is evaluated for sale.
  • Providing external shareholders, customers, and customers with a brief report on the company’s condition, if necessary, especially if they have financial rights over the company’s interests.
  • Writing and drafting the company evaluation report according to the legal and financial rules assigned to this type of report, and then submitting it to the official management of the company, or to the new owners.

Methods for evaluating companies

  • Valuation in net book value: It is the method that relies on evaluating companies by relying on the net value of their assets, after collecting all kinds of liabilities, whether they are debts or unpaid financial obligations.
  • Valuation of the revised book value: It is the method that works to recalculate the values ​​of assets and liabilities in companies, and compare the actual and book values ​​with linking them to a set of economic effects, such as: the rate of financial inflation and the net shareholders ’rights, and then work to amend the book values ​​with values Real, or actual reached.
  • Valuation at exchange value: It is the method that links the company’s capital when it is established with its capital at the present time, and it relies on the company’s evaluation by relying on linking its condition when it was established with its current capital; i.e. replaces the current status of the company with its previous status, so this is considered One of the evaluation methods criticized by many analysts and financial accountants.
  • Cash flow assessment: It is the method that relies on the formulation of a set of suggestions and predictions about the financial position of the company, by relying on studying all the financial details related to cash flow; that is, the financial operations that take place within the company from sale, purchase, and other other operations, and is considered This method of evaluating companies is one of the most used evaluation methods.

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