Saber what does the valorization of companiesThe current value of the company can be estimated and the most appropriate operations can be carried out.
Generally, the operations of sales of a companyThe value is a subjective concept in business terms. Value is a subjective concept in business terms, since there are different aspects that determine this concept, but in its majority, it will be associated to income.
The valorization of companies o valuation of a company is the process of calculating or estimating the economic value of the company. It can also be defined as the valorization of companies as a tool for evaluating a company's financial results.
There are currently a large number of business valuation models. However, these will be classified into two groups: Profitability models and accounting models.
In the profitability modelsThe valuation of real options will be subdivided into other groups, which are: The valuation of real options, market value and discounted cash flows.
While the accounting modelswill be subdivided by: Multiples-based models and balance sheet-based models.
To know this better, we will have to interpret everything from its base.
What is the meaning of enterprise valuation?
The valorization of companies is the concept of increasing the value for different reasons or causes present in a property, an asset or a company. It is defined that the valorization of companies is to give the corresponding value to the company through various financial calculations.
How to value a company?
The valorization of companies is not something that comes by default in companies when they are created, it is something that is created from value. You have to create value if you want to create value, but how exactly do you create value?
There are several ways to create value or to generate a valorization of companiesThis is a subjective concept for most entrepreneurs. However, the most accurate answer is the result of the income that the company receives.
Valuation of companies: Examples
An example of this is the start-up of a new company. As is already known, it belongs to a certain group of shareholders, each of whom will contribute a part for its development, receiving a percentage from the Capital Stock.
These contributions are referred to as "slices" or "portions". The objective of each shareholder is to make his or her portion worth more each time, which is known as valorization or company valuation.
Therefore, company management teams, whether shareholders or not, will direct all efforts to increase and maximize the value generated in the company.
Companies create value through two (2) factors:
The first factor for company valuation is ROIC vs. WACC, while the second factor is growth.
What is ROIC?
ROIC; Return On Invested Capital in English or return on invested capital in Spanish, is an indicator that accurately measures the level of profitability obtained by a company when investing.
It is a potential indicator for the creation of value and the valorization of companiesIt is a tool for analysis that allows us to understand the development and evolution of the company.
A simple example of understanding ROIC is with an industrial company. These companies have in their facilities machinery, existing products, suppliers, balances with customers and other elements.
All of the aforementioned constitute the invested capital of the company. The ROIC will be the percentage of the capital transformed into profit, this is known as ROIC profitability.
This profitability goes against the WACC in the valuation of companies.
What is the WACC?
The Weighted Average Cost of Capitalknown by its acronym WACC English Weighted Average Cost of Capitalis the discount rate used to determine the value that is present in the cash flows when using the valuation of companies.
Continuing with the previous example, companies have two groups whose objective is to inject money into the company, hoping to obtain a profitable return.
These two (2) groups are the shareholders and the external entities. At this point, the weighting of the profitability will be demanded by them, and this is what will be called the WACC.
When do companies generate value?
Every company will generate value or valorization of companies when the ROICthe return on invested capital is greater than the WACC.
This means that a company generates value when its revenues are greater than everything it spends, costs or invests.
We have already seen how the valorization of companies through the ROIC and WACCbut there is also growth.
What is growth in enterprise valuation?
Companies will create value or valorization of companies through growth only if, and only if, the assumptions of the ROIC on the WACC.
If revenues are on the high side, it means that the company will grow successfully and without risk of bankruptcy or dissolution.
However, if it is not complied with and the WACC is higher than ROICNo matter how much a company grows, it will not be able to generate value or increase its enterprise value.
In fact, if a company grows but is not generating any value, it runs the risk of destroying itself.
The growth of the valorization of companies is important, it allows to determine the path the company is taking, increasing its chances of success, development and evolution.
But this will not always be the case. Normally, companies need the help of experts in the field who can provide them with accurate information on where they are at the moment with respect to the valorization of companies.
How to value my company?
Our integrated Valoriza team is formed by experts in business valuationWe have a team of professionals and professors from Pontificia Universidad Católica with more than 20 years of experience, with all the tools available to advise you on the valuation of investment funds, financial diagnostics and other elements of finance.
Through valoriza.comyou will be able to obtain a valorization of companies your business needs.
We invite you to contact us, so that we can provide you with more help and information about business valuation.
