The developing and generating resources mark the value of a company or business. Therefore, the multiple scenarios, results, and their probabilities must be analyzed. The identification of the most appropriate valorization methodology is the first step to start the process.
The selection is based on the company’s characteristics, the capacity to generate cash flows, and the available information.
- Another widely used is the Comparable Multiples method, which is based on financial and functional information of independent companies selected as comparable. Indicators with sales such as EBIT (Earnings Before Interest and Taxes), EBITDA (Earnings Before Interests, Tax, Depreciation, and Amortization), market capitalization, and enterprise value, among others, are used to apply this methodology.
- The Discounted Cash Flow (DCF) method is used whenever there are operating companies with accurate cash flow generation, which is the most widely accepted method in such cases.
- The Real Options methodology involves using the technical aspects related to the Real Options valuation of a company. Basically, it can be used when there is uncertainty about the business progress and gives an overview of the operational flexibility of an organization and its strategic value.
| 1 | Analysis of the target company. |
| 2 | Selection of the most appropriate valuation method(s). |
| 3 | Development of valuation models. |
| 4 | Application of the results in the target company. |
| 5 | Selection of a valuation range. |