business valuation Flashcards
is the simplest method in business valuation. It is calculated by multiplying the company’s share price to its total number of shares outstanding.
market capitalization
a stream of revenue generated over a certain period of time is applied to a multiplier which depends on the industry and economic environment.
Times Revenue Method
instead of times revenue method, the earnings multiplier may be used to get a more accurate picture of the real value of a company, since a company’s profits are more reliable indicator of its financial success than sales revenue is.
Earnings Multiplier
similar to the earnings multiplier. This method is based on projection of future cash flows, which are adjusted to get the current market value of the company.
Discounted Cash Flow (DCF) Method
value of the shareholders’ equity of a business as shown on the balance sheet statement. The book value is derived by subtracting the total liabilities from total assets.
book value
the net cash that a business will receive it its assets were liquidated and liabilities were paid off today.
liquidation value
Is a professional designation award to accountants such as CPA’s who specialize in calculating the value of business.
ACCREDITATION IN BUSINESS VALUATION (ABV)
The ABV certification is overseen by the ______and requires candidates to complete an ______.
American Institute of Certified Public Accountants (AICPA) ; application process, pass an exam, meet minimum Business experience and Education requirements.
Commonly referred as the market value of equity or market capitalization can be defined as the total value of the company that is attributable to equity investors. It is calculated by multiplying a company’s share price by its number of shares outstanding.
The equity of a company is not the same as its book value. It is calculated by multiplying a company’s share price by its number of shares outstanding whereas book value or shareholders’ equity is simply the difference between a company’s asset and liabilities.
MARKET VALUE OF EQUITY VS BOOK VALUE OF EQUITY
Basic equity is simply calculated by multiplying a company’s share price by the number of basic shares outstanding. The calculation of basic shares outstanding does not include the effect of dilution that may occur due to dilutive securities such as stock options, restricted ad performance units, preferred stock, warrants and convertible debt.
BASIC EQUITY VALUE VS DILUTED EQUITY VALUE
It is very important to understand the difference between the two as there are two concepts that nearly always come up in finance interviews. To calculate enterprise value from equity value, subtract cash and cash equivalents and add debt, preferred stock and minority interest.
EQUITY VALUE VS ENTERPRISE VALUE
Both are used to value companies with the exception of a few industries such as banking and insurance, where only equity value is used. An important thing to understand is when to use equity value and enterprise value. It depends on the metric that is being use to value a company.
MULTIPLES VALUATION; EQUITY VALUE VS ENTERPRISE VALUE
When calculating equity value, levered free cash flows (cash flow available to equity shareholders) are discounted by the cost of equity, the reason being the calculation is only concerned with what is left for equity investors.
DISCOUNT RATE: EQUITY VALUE VS ENTERPRISE VALUE
