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Company Evaluation: Objectives, Reasons, Steps and Evaluation Methods

the company's valuation? What is a company valuation? Company valuation is a financial tool that aims to determine a company's financial position and market value in the business world. Valuation is used by investors and shareholders to determine a company's overall value and its ability to survive and grow in a competitive market. The objectives of company valuation are to clearly define a company's financial position, measure a company's ability to compete and sustain, compare a company's position […]

Company Evaluation Objectives

  • Clearly define the company's financial position.
  • Measuring the company's ability to compete and continue.
  • Comparing the company's position with competitors in the same sector.
  • Helping management and investors make accurate strategic decisions.

Reasons for conducting a company evaluation

The evaluation process is conducted for several reasons, the most important of which are:

  1. Determine the value of the company's assets and holdings.
  2. Determine the value of the company's assets and holdings.
  3. Calculate net worth of equity.
  4. Evaluating the value of shares before they are offered on the stock exchange.
  5. Evaluating partners' shares in cases of joining or separation.
  6. Valuation of the company when selling part of it or when liquidating it.
  7. Determine the fair value of the company in the event of

the company's valuation?

  1. It includes all of the company's assets, as well as its debts and liabilities.
  2. To know the current market value of the company.
  3. Determine the rights and shares of shareholders in the capital.
  4. For all data and information via official reports (such as: bank certificates, customer and supplier approvals, warehouse inventory).
  5. To evaluate the company, it is formulated in accordance with financial and legal rules and presented to the Board of Directors for discussion and approval.

Methods of evaluating companies

Evaluation methods are divided into two types: Modern and traditional.

First: Modern methods for evaluating companies

  1. Average annual profit Calculate the average earnings for at least three years and multiply it by 5–7 times (depending on the negotiation).
  2. Net Asset Value Valuation of assets at market value less liabilities.
  3. Team strength The human element is the cornerstone of the company’s success and continuity.
  4. Company age The longer a company has been in business, the more accurate the valuation will be in terms of real growth.

Second: Modern methods for evaluating companies

  1. Net book value of the company
  2. Adjusted book value
  3. Replacement value
  4. Discounted cash flows
  5. P/E ratio
  6. Net market value
  7. residual value

📌 We will discuss these methods in detail in separate upcoming articles.

Conclusion

...and determining its ability to continue and grow in the market. Whether the goal is to attract investors, launch a stock offering, or merge with other companies, a thorough evaluation is a strategic step to ensure the success of any financial or investment decision.