Company valuation is a process carried out to determine the economic value of a company by analyzing its financial, economic, and operational performance. Company valuation can be conducted for various purposes such as the sale of a company's shares, bonds, assets, or the entire entity.

The company valuation process is carried out by considering the company’s financial condition, operational performance, marketing potential, and other factors. These factors include the company’s revenues, profitability, cash flow, business risks, market trends, future growth potential, and many other attributes.

Company valuation can be performed for various reasons such as raising investment, selling or purchasing, merging, tax declarations, accounting purposes, public offering of shares, or sale of a company's shares. For these purposes, the economic value of the company is determined, enabling decision-makers to establish the correct strategies. Again, company valuation requires expertise in areas such as financial analysis, business management, economics, and accounting. Therefore, when valuing a company, it is important to utilize the services of experts or valuation firms in the field.

What is Company Valuation?

From a definitional perspective, company valuation is a process conducted to calculate and present the current price of the existing company. Company valuation allows the measurement of what the company's value is.

The value of a company can be defined as its market value. To determine this, experts need to employ various methods. Ultimately, there are multiple parameters involved in the formation of a company, and each parameter plays an effective role in the company's value. Particularly in situations where companies change hands, the concept of company value, which is clearly defined, can be described as a structure that includes the assets and practices owned by a company.

When the valuation of a company is performed by experts, it should include several functions. The characteristics mentioned are as follows:
● Evaluation of the current status of the company
● Analysis of the evaluated company status
● Analysis of opportunities and risks the company faces or may face
● Quantitative expression of the analyzed opportunities and risks
● Examination of all analyzed values from an operational perspective and evaluation of the company’s future condition
● Recording the company's objectives
● Customizing the company valuation method according to the company's objectives
● Examining the company from multiple perspectives during the valuation
● Ethical behavior by the individuals or firms conducting the valuation
● Technical proficiency of the valuers

To determine your company's value, you can refer to specialized techniques and methods that can be obtained from experts. Currently, large companies benefit from consultancy services to have sufficient information about company valuations. You can also learn your company's value. With ODS Consultancy, you can entrust your company valuation to expert and reliable hands.

What are the Purposes of Company Valuation?

Company valuation is a process conducted to determine the economic value of a company. Company valuation can be carried out for various purposes and is important for the following reasons:
• Raising investment: Company valuation helps investors by determining the economic value of the company, enabling them to calculate the amount they would invest.
• Selling or purchasing: Company valuation assists in determining the correct price during the sale or purchase of a company.
• Tax declarations: Company valuation provides necessary financial information such as asset values, capital gains or losses, and depreciation values for the company's tax declarations.
• Public offering of shares: Company valuation ensures correct pricing before the public offering of the company's shares.
• Accounting purposes: Company valuation helps in the accurate management of the company's financial information.
• Borrowing: Company valuation helps determine the company's capacity to obtain loans.
• Analyzing the company’s performance: Company valuation assists company executives in making informed decisions by analyzing the financial performance, profitability, cash flow, and other factors of the company.

For these reasons, company valuation is considered an important process for a company, and it is essential that it is conducted accurately to make the right decisions.

How is Company Valuation Conducted?

Two types of analyses are used during company valuation: Technical and fundamental analysis. The value of the company is calculated using these analyses. The current financial situation of your company and its future state are also taken into account during company valuation analyses. Thus, the economic conditions your company faces in the future play an active role in your company’s value.

Many methods are used in company valuation. One of them is the Price/Cash Flow Ratio Method. This is defined as a method calculated using the P/CF ratio. When determining the company value with the P/CF Method, the average P/CF ratio of the industry or market in which the company operates is examined. Then, the company’s current cash flow is investigated. Afterward, these two values are multiplied mathematically to reach a conclusion.

Defining the P/CF ratio is significant for company value. The P/CF Ratio is defined as the cash flow per share of the company in relation to its stock price in the market or industry. To achieve this, a comparative method is employed. The data of the company to be valued and several ratio values are determined, and the cash flow ratio of the company is revealed. These two values are then mathematically multiplied to obtain a new value. This is indicated as determining the value of the company based on another company in the market.

Additionally, there are two types of dimensions in the valuation of the company: Subjective and objective dimensions. The uniqueness of each valuation may vary according to the perspective. As in the P/CF Method, the value of one company may differ based on another. Ultimately, there are differences in perspectives among companies. In this regard, the subjective influences in company valuations are as follows:
● Investors
● Government
● Suppliers and supply chain
● Businesses and enterprises
● Employee segment
● The society engaged with
● The customer portfolio engaging with
● Relevant NGOs with whom communication is established

Moreover, the elements of the objective dimension in your company valuation are as follows:
● Valuation based on the company’s activities
● Valuation based on the company’s purpose
● Valuation based on opportunities and risks faced by the company
● Valuation according to the shareholders of the company
● Book value provided by accounting records
● Market value of the company
● Liquidation value from which the liabilities are deducted in case the assets of the company are sold at auction
● Reconstruction value in case of the company’s renewal
● The ongoing business’s operational enterprise value
● Should the real value of the company not be known, its comparable value accepted within a similar value range
● The expert value assessed according to the valuation of any asset with an expert approach
● Net asset value obtained by deducting the liabilities from the asset values held by the company
● Market capitalization value of the company

What are the Approaches to Company Valuation?

Specific approaches are used when valuing companies. In these approaches, one or more methods can be used in a compound form. Additionally, it can be said that these approaches do not differ from each other; rather, they complement each other.

The approaches to company valuation are as follows:
● Cost approach
● Income approach
● Market approach
● Approach towards company assets
● Earnings approach
● Economic value added approach
● Asset-based approach

There are various methods used for the approaches applied in company valuation. These methods are:
● Liquidation value
● Reconstruction value
● Going concern value
● Discounted cash flows
● Comparable value
● Net asset value
● Market value
● Book value
● Expert value
● Amortized replacement value
● Dividend yield
● Market capitalization value
● Arbitrage pricing model
● P/CF ratio
● P/EA ratio

How is Company Valuation Determined?

Company valuation can be determined using various methods. Some of these methods are explained below:
• Discounted Cash Flow (DCF) Method: This method forecasts the future cash flows of the company and discounts those cash flows to present values. This method determines a value based on the company's future performance.
• Market Multiples Method: This method determines the value of a company based on the market values of similar companies. The market values of comparable companies are utilized in determining the value of the company.
• Asset-Based Method: This method determines the value of a company based on the total value of its assets and the equity remaining after liabilities.
• Comparative Analysis Method: This method allows the determination of a company's value by comparing the financial ratios of companies in similar industries.
• Business Valuation Method: This method determines a company's value based on the economic value created by the business.

The methods above are the most commonly used methods for company valuation. However, depending on the characteristics of the company, the industry, and the method used, other methods may also be employed.

What are the Advantages of Company Valuation?

Company valuation is an analysis conducted to understand a company's financial condition, performance, and future potential. This analysis has many advantages, such as:
• Used for making investment decisions: An investor wants to know the true value of a company before investing in it. Company valuation assists investors during the decision-making process.
• Used to understand the company's financial state: Company valuation helps comprehend the financial status of a company. Factors like the company’s assets, debts, revenues, and other financial indicators are analyzed.
• Used for buying and selling transactions: Company valuation is necessary for transactions such as purchasing or selling a company. Such transactions cannot be carried out without proper company valuation.
• Used for obtaining loans: A company may obtain loans to grow or enter a new business. Company valuation is used to determine the amount of funding a bank or lending institution provides to the company.
• Used for tax declarations: Company valuation is employed to define the financial information used in a company's tax declarations.
• Used to determine the current market value of a company: Company valuation is utilized to establish the market value of a company. This valuation can be used for the sale of the company’s shares or for an initial public offering.

For these reasons, company valuation is highly important for a company, and it must be executed accurately.

How to Write a Company Valuation Report?

A company valuation report is an analysis that describes a company's financial condition, performance, and future potential. Here’s how to write a company valuation report:
• Introduction: At the beginning of the report, the purpose of the report and the name of the company being evaluated should be indicated. Additionally, the date of the report preparation and the names of the evaluators should be included.
• Company Profile: An overview of the sector in which the company operates, its services, customer base, geographical location, and other important characteristics should be provided.
• Financial Analysis: Detailed information about the company’s financial status must be provided. This should include an analysis of financial reports such as the income statement, balance sheet, and cash flow statement. This section should also include an estimate of the current year’s financial performance alongside previous years’ financial performance.
• Valuation Method: Detailed information should be provided regarding the methods used for company valuation, such as discounted cash flow, comparable company analysis, or asset-based valuation method. The reasons for using these methods and the results should also be explained.
• Risks and Opportunities: An analysis should be presented regarding the risks faced by the company and future opportunities. This section should also include general trends, competition, and market conditions in the industry the company operates in.
• Conclusions: Based on all analyses and findings, a conclusion about the company’s value should be drawn. This conclusion may either reflect the current value of the company or its future potential value.
• Recommendations: At the end of the report, suggestions for enhancing the company’s value can be presented. These may relate to changes in the business model or financial strategies.

A company valuation report requires a detailed analysis and is typically prepared by a specialized valuation expert or firm. The report should be clear and understandable, presented alongside supporting data.

For What Purpose is Company Valuation Conducted?

The purpose of company valuation is to determine the value of an existing company according to sufficient and appropriate market conditions. In this respect, company valuation can be summarized in three key concepts. These are:
● Evaluation of the effective activities belonging to the company,
● Evaluation in terms of opportunities and possibilities confronted by the company,
● Evaluation from the perspective of company owners and shareholders.

Who Prepares the Company Valuation Report?

A company valuation report requires a comprehensive analysis covering areas such as financial analysis, sectoral analysis, and future potential analysis. Therefore, we can say that this company valuation report is typically prepared by a valuation expert or firm. Valuation experts use various methods to determine the value of companies and perform financial analyses while making predictions regarding future opportunities and risks.

Valuation experts must also be knowledgeable about the industry in which the company operates and should consider the trends and competition in that sector when conducting the valuation. The company valuation report can be requested by various groups, such as company executives, investors, banks, and other relevant parties.

Example of a Company Valuation Report

If company valuation is conducted, a report is generated. The content of the report is divided into specific sections and topics. Accordingly, the first stage includes an introduction.

The introduction contains a brief summary concerning the executives. In the continuation of the report, you may encounter the sections you will face. Thus, you can check the page number of the section you desire. Furthermore, the company valuation report can be customized by adding various items to the report content.

The continuation of the report includes information regarding the report. These details encompass the client’s contact information as well as a brief summary of the report request, along with the contract made with the client.

On the following pages, the profile of the company being valued is presented. Following that, information about the company’s area of activity and the status of the market in which it plays an active role is provided. Additionally, the management of the company, the quality of the company, and its corporate structure are incorporated into the report. The financial status, budget, controls, and audits of the company are also addressed in the report. Finally, analysis of the sector in which the company operates, the economic structure, and the region is discussed in the report. Thus, every component that may impact the company’s value is included in the report content, providing an evaluation based on the company.