Usually, a company valuation is required as part of a business transaction, for example when selling a company, buying/merging with another company or attracting investment . You can also calculate the approximate value of your company yourself, however, business partners can value the opinion of experienced company appraisers, including Capitalia, more highly. Therefore, below we present different methods of how the value of the company is determined and how it is practically possible to improve it.

In order to determine the adequate value of the company, three basic valuation methodologies are used in practice in such situations - the income method, the asset method and the comparative company method.

The income method predicts the company's financial performance in the future and determines (capitalizes) the value of future income in the present form. The working principle of this method stems from the fact that receiving EUR 100 now is more valuable than after 1 year, because during this one year it would be possible to invest these hundred euros (for example, in a deposit) and get a larger amount of money at the end of the year. So, in simple words, if a company promises to earn EUR 100 in one year, then the revenue method determines how many euros this future revenue is worth now. The more risk a company's future earnings are exposed to, the bigger the "discount" should be applied to the company's future earnings. For example, if the company's future income was as safe as a deposit in a bank whose rate could be, for example, 10%, then the present value of 1 year's future profit in the amount of EUR 100 would be EUR 100/(1+10%) or EUR 90.90. So the income method states that I would not care whether I receive EUR 90.90 now or a company income of EUR 100 a year from now. Based on this basic principle, the future income of the company is predicted and the sum of the present value of all these incomes is determined. The main disadvantage of this method is the difficulty associated with forecasting future income, as well as determining the necessary "discount" (or capitalization rate) for the company's future income.

In order to improve the value of the company according to this method, it is necessary to work on the guarantee of future revenues - to conclude cooperation agreements for longer terms, to attract stable customers with a long operating history who would have a low risk of bankruptcy. However, future earnings can never be fully predicted - in a changing economic and political situation, even the most secure and reliable future earnings can become risky.

The second valuation method is asset valuation . As the name of the method suggests, this approach determines the price of the company's balance sheet assets (equipment, inventory, etc.), and all the company's liabilities (bank loans, debts to suppliers, etc.) are subtracted from it. Since this method is not based on subjective assumptions about the company's future performance, the asset valuation methodology can be considered a simpler and more realistic approach to identifying the company's market price. However, this method does not take into account the intangible assets of the company, which are not reflected in the balance sheet (for example, trademarks, developed procedures, customer loyalty, etc.), so the asset method is used basically only when valuing companies in difficulty (close to insolvency) or in case of liquidation. although it is relatively easier to increase this value - by purchasing new assets and reducing liabilities -, in practice, this method is not required in the case of a company sale or investment attraction.

The third method is the method of comparative companies and transactions . Due to its simplicity of use and ideology, this method is often the most popular of the mentioned company valuation techniques. This method states that the market price of a company is derived from the value that buyers are willing to pay for similar company/s. For example, if my competitors have just sold their hotels at a price equal to 50% of their last year's turnover, then my hotel should also be priced at 50% of their last year's turnover. Unfortunately, this method does not take into account the fact that companies, although working in the same field of activity, are different, and these differences are also reflected in the true market value of the company.

Although information about similar companies is worth capturing and taking into account when planning your company's future strategy and development plans, in this case it is difficult to justify why the company's value is higher than other recently sold competitors. Competitor research provides insight into a company's potential value even before ordering a formal valuation, but this method does not have a single answer to how to improve a company's value.

None of the methods described above are without their shortcomings and applicable to all valuation situations, so professionals usually use several methods in parallel when determining the value of companies. It should also be taken into account that valuations may differ depending on whether the entire company (significant control) or minority parts of the company is being valued.