Evaluation of company

Definition and objective

Evaluer a company is to estimate, starting from objective criteria (financial performances, values of credits,…) , its Value, in other words its potential price.

This evaluation is used for in particular to decide on a acquisition of a holding or purchase or sale of actions out of purse.

Method evaluation “fundamental”

The principal method rests on the analyzes fundamental (to be distinguished from other methods of financial Analyze), in other words the study

of the accounts of the company,
of its technical capabilities and commercial
of its management
of its economic environment.

As regards the analysis of the accounts at end of evaluation, it comprises two principal shutters which are complementary:

static method (or “patrimonial” ): starting from the analysis of the credits and debts with the Assessment, to determine by difference the real Credit net.

dynamic method (or “economic” ), which:

analyzes the evolution over several years of the Income statement
then establishes, according to economic and strategic forecasts, of the probabilized scenarios (mathematical Espérance) of results future (Bénéfice S, Capacité of self-financing)
and applies to these forecasts a hoped yield, in general the risky Taux usually observed to the financial markets,

\ sum_ {n=1} ^N {\ frac {CF_n} {(1+i) ^n}} + Valeur Terminale

where

$CF_n$ is the cash-flow envisaged the year N

I is the up-dating rate (generally the rate says “nonrisky” loan without risk, e.g bond of a solvent State, to which one adds a Allowance for risk specific to the private companies)

NR the number of years on which one established forecasts

Final Valeur : value to which one provides that the company will be evaluated at the year NR (it is generally this term - difficult to evaluate - which with the strongest value in the sum; this is why this method gives only one indicative result)

The dynamic methods make it possible to determine the value of the company. By withdrawing the amount of the clear debts appearing in the assessment (or by adding the clear treasury if the company is in positive treasury) one obtains the value of the capital. While dividing by the number of actions (including the actions " virtuelles" such as those to emit in the BSA or stock options and while adding then in the capital the amount of the lifting of funds corresponding) one obtains an objective course.

The major difficulty is the determination of the allowance for risk. That Ci evolves/moves according to the debt of the company (the debt is refunded in first), of the size of the company (the grosses support the risks best), of the sector (the high tech is riskier than the distribution) and the liquidity (companies not - dimensioned are less easily saleable). There is no really formula giving the " vrai" rate, which explains the existence of a market of the values. In practice, the up-dating rate currently evolves/moves around 3% for the rate without risk, around 7% for a dimensioned market, of 10% for riskiest of the companies with dimensions and until more than 25% for the companies of the capital risks.

Other methods

The methods can differ according to whether the company is accessible to the public by a stock exchange quotation (legal and financial concept Anglo-Saxon of Public company or not - dimensioned on the market (concept of Private company)

Companies with dimensions

For the companies having action S dimensioned in purse, but also for the others, with comparison criterions (Benchmark S stock-brokers)

it is current, by facility, to evaluate them starting from the ratio stock exchange courts/earning per share (famous PER)
some still use other methods: technical Analysis, quantitative Analysis, behavioral Analysis

Companies not - dimensioned

Concerning the companies not - quoted on the stock exchange, which are most numerous,

their evaluation must take account of a " décote" because of absence of liquidity (difficulty to resell its participation in the absence of an accessible market)

the accounting value (Book been worth) is a method sometimes used to evaluate the production units or the distribution companies. This method deduces simply the liability from l´actif. This simple step makes it possible to release the net amount (Net worth)

L´évaluation of the companies service providers on the other hand often takes into account the customers, management and the employees (Regarded as belonging to l´actif). L´évaluation of the companies providing the services poses serious problems insofar as the performance is often function of the relations between management and the customers.

a technique d evaluation called cost of beginner or " entry cost" , which consists in evaluating a company by taking as reference the cost to create (to begin) a similar company.

See too

External bonds

analyzes of company
free Worksheets Excel to implement various methods evaluation
Head office of the taxes (France). To launch a research on the words " Guide the evaluation of the entreprises" to obtain a reference document on the evaluation.

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