There are several factors that can influence the value of a company, but the main ones are:
- Future cash flow: generating more cash over time is the key to increasing enterprise value. Cash is what a company generates and that the partners can freely withdraw or dispose of without altering the company's operation or sacrificing its future growth.
- Growth: a company's expected growth in sales volume and/or margins also affects its value. With high expected growth there is usually a higher value than with low growth. However, this is not always the case. There are exceptions: For example when the rapid growth that is planned entails higher risks, when the company has excessive working capital needs resulting from its payment deadlines or when the company destroys value. These cases are not the most common and measures can be taken to mitigate them, but they do exist.
- Risk: a company with a higher risk usually has a lower value, due to the effect of the discount rate applied on future cash flows. A higher risk implies a higher discount rate, and therefore a lower value.
- Profitability: profitability can be measured with different ratios, the most classical example being margins, but when talking about the value of a company, the profitability that really matters is the money that could be withdrawn by your members on a monthly or year-end basiseven if they choose not to.
- Company size: there are some companies that are worth more than others just because they are listed on the stock exchange and are not affected by a lack of liquidity.z. In general, size will not necessarily be the main determinant of a company's value, as other factors also play a role. The industry in which the company operates, margins, indebtedness and company management, among other things.
- Economic sector: the economic sector in which a company operates can affect its value, some have higher expected returns and lower risk. This is often the case in industries that are in new, fast-growing stages. For example, today the technology sector has a high growth potential because demand is growing and, therefore, is more attractive to investors, whereas in the case of mature industries this is not the case because they do not have a demand that follows an exponential trend.
It is important to keep in mind that these factors can interact with each other and affect the value of a company in complex ways. In addition, there may be additional factors that influence its value depending on each specific company or industry. If you are interested in selling your company, we suggest you read the article listed below. the stages of a company's sales process.
